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NEW DELHI : On more than one occasion in recent months, India has been hailed for holding its head high amid a looming global economic slowdown. An economic recovery index run by the Financial Times and Brookings Institution called India a “bright spot" in October; so did the head of the International Monetary Fund. A recent study by asset manager Invesco put India as the second most coveted market after the US for sovereign and public pension funds in 2022. In a year of global upheavals, such views seem surprising. Here are five data points that explain the current optimism about India.

Upwards and Upwards

Between 1990-91 and 2019-20, the Indian economy grew at an average rate of 6.2% per year and the annual rate of population growth dropped to under 1%. As a result, per capita income improved, and paced up, with each decade. The per capita gross domestic product (GDP) does not capture income inequalities, nor is it a perfect measure for quality of life, but is valuable nevertheless as a higher number reflects an overall improvement in living standards.

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The steady rise in per capita GDP compares favourably with other emerging economies: while India does not have the stellar growth paths of China or Russia, growth is less volatile than Brazil or Nigeria, and faster than Indonesia or the Philippines. A rough calculation shows that even with a conservative 6% annual GDP growth and population growth of 0.8%, per capita GDP will grow at 5% per year in this decade—inevitably a reason for positivity.

Youth Power

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Although growth in the working-age population has slowed, India still enjoys a demographic dividend—the phase when the working-age population outnumbers the dependent population. Until 2025, India will add 11 million workers a year, giving it a larger labour pool than emerging peers (Indonesia, Brazil, and Vietnam will add 1.6 million, 0.5 million and 0.2 million, respectively), according to the World Bank. A median Indian is 27.9 years old, younger than the comparable European (41.9), North American (38.2) or Chinese (38.5). By 2030, India’s median age is projected to cross 30. A typical 30-year-old earns, spends and saves, usually in that order—habits that fuel consumption and investment demand. Young people also tend to be aspirational, innovative, tech-savvy, and entrepreneurial—attributes that could catalyse the country’s digital shift. The challenge, of course, is to provide education and skills and generate jobs for the youth entering the labour force.

Fiscal Calm

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A fiscal management law that came into force in 2004 laid down norms for government borrowing and deficits. The targets have not been achieved, and worse, also delayed in several Union budgets by various governments. But most governments have also, simultaneously, signalled an intent to be fiscally prudent. That explains why the medium-term fiscal deficit target was repeatedly set at the prescribed benchmark of 3% of GDP. Markets and investors appear to accept moderate deviations, as long as there is a stated long-term target, and constant effort to get there without compromising on growth, as in India’s case. That is why the proposed glide path to reach a fiscal deficit of 4.5% by 2025-26 is widely viewed as a step towards fiscal consolidation, and creates the confidence that India will not slip into fiscal chaos.

Default-proof

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Unlike some low-income debtor nations, India has managed to avoid sovereign default through careful dollar borrowing, and by accumulating forex reserves to protect against potential debt crises. This is paying off now, as a combination of rising interest rates, strengthening US dollar, and pandemic income losses make it harder to service dollar loans. Earlier this year, a UNDP study warned that 54 countries, accounting for more than half of the world’s poorest population, may face severe debt problems. India is not among them. In March, external debt accounted for less than 5% of total national debt. Of this, about 16% was denominated in rupees, and does not carry currency risk. Private sector borrowing formed 78.9% of external debt, as sovereign debt is mainly issued domestically, and foreign ownership of government debt is controlled. A cross-country comparison shows that India has low vulnerability to debt default, a plus for investment worthiness among other emerging economies.

Economic Well-being

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The “Misery Index" is a useful metric to gauge hardship at an individual level. It’s the sum of inflation and unemployment rates. Since both inflict economic pain, a higher misery index implies worsening economic conditions. For more nuance, one may also subtract the GDP growth rate—greater economic growth can compensate for inflation and unemployment by improving living standards. A hypothetical misery index made up of 4% inflation, 5% joblessness and 7% growth would be good for India. The country was close to that in 2017-19. The pandemic pushed up economic misery, but conditions have now improved with a pickup in growth and employment, though inflation is still high. The challenge is to balance all three such that it is optimum for Indian conditions. For instance, the damage from a global recession can be mitigated by promoting domestic consumption, or potential joblessness can be stalled by prioritizing job skilling.

The author is an independent writer in economics and finance.

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