The Covid-19 pandemic not only caught the world unawares, its impact on global growth has easily been the worst in several decades. And just as growth was starting to show nascent signs of recovery, inflation has reared its head, and how. The narrative for the world has changed quickly since then.
From a phase where central banks were bringing down interest rates to support and spur growth, we have quickly come into an era where banks around the world are rapidly raising interest rates as they look to tame inflation.
The US Federal Reserve, the central bank of the US, has raised interest rates by 300 basis points in a span of just eight months from February to September, as growth in the world’s largest economy remains lacklustre. This is faster than the rate hike cycle between May 2004 and November 2005, when the US Federal Reserve had hiked interest rates by 300 basis points over an 18-month period, and between November 2015 and December 2018, when it had hiked rates by 225 basis points over a 37-month period.
Fears of a recession are running high in the UK as well. It could well be said that there is a sandstorm brewing globally. But, India has managed to stand tall and remain an oasis amidst all this.
From being the 10th largest economy in the world in 2014 with a 2.6% share of the global gross domestic product (GDP), India is now the fifth largest economy in the world, having recently overtaken the UK. It now has a 3.5% share in the global GDP.
If we look at the debt levels of nations from the end of the first quarter in 2008 to the end of the first quarter in 2022, India is the only nation which has improved its debt as a percentage of its GDP. The comparison includes Australia, Brazil, China, France, Germany, Italy, Japan, South Korea, Mexico, South Africa, Spain, the UK and the US.
Cut to the present, where the level of economic activities is close to an all-time high. The level of economic activity in India is, in fact, higher than the pre-Covid levels as well. The monthly collection for goods and services tax has reached around Rs 1.4 trillion, which seems to have become the new normal.
The country’s capital expenditure as a percentage of the GDP is now close to 3%, which is the highest in about 18 years. Sales during the festive period have also been robust, as has been the growth in credit. This has been about numbers. Now let us talk about opinions. Bob Sternfels, the global managing director for McKinsey and Company, recently said that it is not just India’s decade but its century, underlining the global optimism for the country’s growth prospects. Earlier this month, Prime Minister Narendra Modi, too, said that this century would be India’s while inaugurating the 5G services.
The government is also putting its weight behind making India the manufacturing hub for the world, and this is already showing results. Apple will manufacture iPhone 14 in India, a major affirmation for the country’s manufacturing prowess.
While we may be seeing a slowdown in growth currently, we are still set to grow faster than most developed and developing nations in the world. That’s called ending on a good note.
Nilesh Shah, Group President, Kotak Mahindra Asset Management Company