Economists say the next 10 years could become the most important in India’s economic history, because if everything goes according to plan, India will be able to reap the fruits of its favourable demography over 2030s and 2040s before she loses that edge in the 2050s.
“The 2020s decade could be seen as the ‘Healing Decade,’ wherein all efforts would be towards just one objective – to regain lost economic strength,” Nikhil Gupta and Yaswi Agarwal of Motilal Oswal Financial Services said in a note today.
They argued that if that ‘healing’ does not happen, then the economy will continue to crawl with the average growth getting subdued with each decade. “The problem with this strategy is that average growth is more likely to deteriorate with every passing decade, rendering adjustments inevitable,” Gupta and Agarwal said.
They believe the Covid-19 pandemic has given the economy a chance to reflect, introspect and tackle the long-term structural challenges that have bogged down growth in the past.
India’s economy grew at an average rate of 7.7 per cent in the past two decades, but growth was never uniform. Each of the past two decades started off on a strong note and faltered before picking up sharply in the middle years, but then faltering again towards the end.
Gupta and Agarwal call it the ‘sleeping S-shape’ growth trajectory. They fear a similar pattern may ensue in the new decade, if the economy fails to address structural issues such as the health of the financial sector, government’s balance sheet, employment and deteriorating household savings.
With the government’s balance sheet impaired beyond recognition by the Covid-19 pandemic, Gupta and Agarwal believe the government thrust on economic growth will be minimal in the 2030s unlike what has happened in the previous two decades.
“It may take 10–15 years for the government to return to pre-Covid debt levels. This means the government spending over most of the next two decades would be highly subdued against the 2010 decade,” they said.
Household consumption demand could also remain slow over the coming years as the pandemic is expected to have reset consumer behaviour in the sense that they will now look at reduce leverage and improving their savings.
In fact, if households have to rebuild their savings. Consumption growth must be slower than income growth in the 2020s decade, the report said.
“Improved balance sheets of all economic participants would mean the stage is set for a grand multi-decadal strong performance from the Indian economy,” Gupta and Agarwal said.
Agarwal and Gupta argue that the government must not be tempted at boosting the consumption-led economic model further and instead incentivise investment from both corporate and households.
“In short, the task is not an easy one…had it been easy to achieve growth in the high single digits for 2–3 decades, it would have been achievable by more than just a handful of nations in the world,” the duo said.