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India seen contributing 15% of global growth by fiscal year 2026

The ongoing key reforms such as sops for manufacturing, easier labour laws, wooing FDI inflows and privatisation will help improve productivity, says a report

Indian Economy | world economy | Economic recovery

Press Trust of India  |  Mumbai 

manufacturing, Indian economy, Industries, GDP growth, IIP
Representational image

The ongoing key reforms such as sops for manufacturing, easier labour laws, wooing FDI inflows and privatisation will help improve productivity and support long-term growth at 7.5-8 per cent levels, which if played out well, can help India contribute 15 per cent of global GDP growth by FY2026, says a report.

According to a report pencilled by the India economist at UBS Securities, Tanvee Gupta Jain, the country has the lowest manufacturing costs among peers, even though China retains significant ecosystem advantages and despite that India and Vietnam appear most likely to benefit from a shift out of China.

"The incentives for manufacturing, easier labour laws, encouraging FDI inflows and privatisation will help improve productivity and support long-term growth closer to the upside scenario of 7.5-8 per cent. If this played out well, we estimate that India could contribute 15 per cent to global GDP growth in the next five years ending FY26, Gupta-Jain said without quantifying the present share.

The report expects the large local market potential, low labour costs, macroeconomic stability and the hope of strengthening ongoing reform momentum will help achieve these objectives.

Describing production-linked incentive (PLI) scheme ushered into to boost manufacturing, as a golden opportunity for manufacturing she says the five-year scheme is a significant turn in the manufacturing policy as it incentivizes select companies to scale up production and boost domestic value-addition.

From almost zero now, India's capacity should reach 20-30 per cent of the total global supply chain in the next two years, says Gupta-Jain pointing to the plans of Apple to increase production in India and also global electric car major Telsa announcing local production of Model 3.

This is in spite of the fact that as much as 30 per cent of China's gross exports are in industries that do not have strong competitive onshore supply chain advantages, mainly in electronics assembly industries, and are more vulnerable than others to relocation to low-cost locations.

Pegging FY22 growth at 11.5 per cent, making it one of the fastest in Asia, after a 7.5 per cent contraction in FY21, she says, beyond FY22, we expect growth to slow to 6 per cent in the subsequent years despite as the slowdown since 2017 has been led by structural issues, such as stretched balance sheets of households due to weaker job creation, government debt overhang, a risk-averse financial sector and low capex by corporates, and the still ongoing pandemic-related disruptions further widening income and wealth inequalities.

Another enabler is the rising FDI inflows, which had hit an all-time high of USD 56 billion in FY20, says the report and expects the inflows to cross USD 100 billion plus annually till FY26. Though the inflows are estimated to be falling to USD 40-45 billion in FY21 due to the pandemic, the report expects normality from the next fiscal.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Tue, January 19 2021. 19:25 IST