For many observers, India is fast emerging as a significant player on the global economic stageThe signs are increasingly evident; just last year, India surpassed its former colonial ruler, the United Kingdom, to become the world's fifth-largest economyAs it stands, India boasts one of the youngest populations globally, which is still growing, and is projected to exceed 1.4 billion this year, overtaking China as the most populous nation on Earth.

In addition, the Indian economy has demonstrated robust growth in recent yearsBased on the GDP data released by the Indian government on February 28, the country's real GDP growth reached 6.7% for the whole of last year, which far outstrips China's 3.0%. Ambitious forecasts from Indian authorities even predict a 7% growth rate for 2023.

However, some analysts argue that these facts represent merely a solid economic foundation, contending that India may struggle to maintain its leading advantages under high interest rates and subdued demand over the long haul.

Accelerated Development

India is now one of the fastest-growing economies globally.

Since 1992, India's share of the global GDP has more than doubled

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Back then, the GDP of the United States was 18 times that of India, but this figure has now decreased to just 7 times.

The COVID-19 pandemic has fundamentally altered global operational patterns, positioning India uniquely with its scale, technological capabilities, and English proficiencyMoreover, India's delicate geopolitical positioning has attracted the attention of many countries.

Prime Minister Modi has portrayed himself as an ardent advocate of globalizationDespite a decade of not signing trade agreements with any major economies, India sealed new accords with the United Arab Emirates and Australia in 2022, while a potential deal with the UK may materialize in the first half of 2023.

During the pandemic, India also began improving its physical infrastructure, narrowing the gap with what the International Monetary Fund refers to as "world-class public digital infrastructure." The transformation in Indian cities is stark; infrastructure currently accounts for 23% of total state government expenditures, the highest in a decade, while central government infrastructure spending has reached a historic high of 19%.

Moreover, during the pandemic, India worked towards resolving much of its bad loans issue

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In 2017, bad loans accounted for a worrisome 11.2% peak of total bank lending, but have since decreased to 5% and are likely to decline further.

Growth Targets Under Pressure

2022 was a milestone year for IndiaThat year, India's GDP overtook the UK for the full year, positioning it just behind the United States, China, Japan, and Germany as the fifth-largest economyProjections suggest that by 2025, India may even find itself tied for fourth place with Germany.

Nevertheless, India's economic growth slowed to 4.4% in the fourth quarter of 2022, compared to 6.3% in the third quarter and a striking 13.2% in the second quarter

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Economists surveyed by Bloomberg anticipated a 4.7% growth in the fourth quarter.

This slowdown appears to stem primarily from a decrease in manufacturing activity, weak consumer spending, and reduced government expenditure.

Manufacturing has contracted for the second consecutive quarter, down 1.1% in the fourth quarterSimultaneously, as borrowing costs have increased, consumer spending has also plunged, with growth in private consumption falling from 8.8% in the third quarter to 2.1%, accounting for about 60% of India's GDPWhile the services sector—including finance, real estate, transport, and communication—recorded year-on-year growth, the pace has slowed compared to the previous quarter.

This deceleration runs counter to the Indian government's targets.

On February 1st, Finance Minister Nirmala Sitharaman delivered the budget speech for 2023 in Parliament, announcing expectations of a 7% GDP growth for the year

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Sitharaman noted that India had surged from being the tenth largest economy globally nine years ago to the fifth largest, with per capita income more than doubling, and that growth in 2023 is anticipated to stay robust among the leading global economies.

Analysts estimate that to meet the 7% full-year growth target, India must achieve at least a 5.1% growth rate this quarter, although the central bank has projected only 4.2%.

Currently, the Indian economy is grappling with challenges such as inflation, a sustained slowdown in the global economy, and weakened demand post-pandemic.

Economists at QuantEco Research predict that with the pent-up demand during the pandemic beginning to fade, India’s growth rate may slow to 6%. The decline in government revenues and rising interest rates have hindered capital expenditure, while the toll of military conflicts and global economic slowdown adds further strain.

At the same time, consumer prices have been rising for nearly a year, eroding the purchasing power of the Indian populace