India has arrived

India’s ongoing growth and increasing offshore interest has placed it in firmly in the global economic discussion.

The economy’s rapid expansion has been subject to scepticism in the past, but in 2024, it’s clear India has arrived.

The are three key elements behind how India got to this position, and where it will go next.

The first is how India has handled recent challenges. The most difficult part of the cycle for the Indian economy has probably passed. Getting growth to 7 per cent per annum - and staying there - will be tough. But India has emerged from the China slowdown and aggressive global interest-rate hiking cycle in solid shape.

{video}

Structural

Secondly, the way India has handled those developments really comes down to structural improvements in its economy. That’s not to say everything is perfect, but structural issues that historically have been handicaps for India are being addressed.

One is India’s current account balance, which has blown out in the past when demand picked up. Its current level is less than 1 per cent of gross domestic product. A decade ago, 4 per cent to 5 per cent of GDP was a normal level.

India’s banking system has previously been a source of vulnerability, with non-performing loans building up after tightening cycles and periods of strong growth. The non-performing loan ratio in the Indian banking system are today at record lows.

Then there’s India’s exchange rate, which is currently strong. The rupee has historically depreciated aggressively at the least helpful part of the cycle when inflation is already a challenge.

Reform

The final part of India’s reform story in India is its future. GIFT City - the Gujarat International Finance Tec-City – is a national financial centre built on Indian soil, and is gathering visible momentum.

Historically, much Indian-related capital market activity has occurred outside the country, in the international financial centres of Singapore, Hong Kong, London, New York and further afield. First conceptualised in the late 00s, GIFT City has brought that back within the Indian domicile.

It would be unwise, of course, to discount the issues India still has. Generating the right sort of demand for labour is something the economy needs to work on. Harnessing the power of its female workforce also remains a challenge. And of course, India has joined the ranks of countries with minority governments, which can bring its own challenges.

But despite these agendas, India's economic destiny very much is in its own hands.

Richard Yetsenga is Chief Economist at ANZ