India’s Rise: Growth Scenarios

India’s Prime Minister Narendra Modi at the start of his second term has laid out a vision of economic growth for India that would see the country’s GDP nearly double from US$3tn today to US$5tn within the next five years. Achieving this target will require a GDP growth of approximately 8%, substantially higher than India’s current growth, but well within its growth potential of 10% or more at this stage in its growth trajectory.

As highlighted in previous Signs of the Times, India’s growth is fundamentally being driven by a series of macro drivers, including its large and growing workforce, rapid urbanisation, mass technological adoption, financial inclusion and growing (mass-) consumerism, factors that are largely independent of government policy and provide a stable basis for the country’s long term economic growth. Despite these independent drivers, India’s growth is of course not decoupled from that of the rest of the world, and remains subject to external supporting events and dislocations, with the world as a whole entering a period of increased volatility and decreased growth. Accordingly, while the achievement of India’s targeted US$5tn economy is not in doubt, the timeline on which it will occur potentially is. India’s leaders will need to focus their efforts on supporting policies removing roadblocks to the independent drivers and on avoiding being derailed by internal dislocations and countering external dislocations. The first Modi government (2014-2019) has demonstrated that it can successfully deliver the first of these two through the implementation of structural reforms that drove GDP to up to over 9% at its peak. Delivering an average growth rate of 8% for a sustained period in the face of macro-economic headwinds, however, will depend on the government’s ability to continue to press ambitious reforms.

This month’s Sign of the Times examines India’s current economic growth outlook and challenges, developing three potential future growth scenarios, each driven by assumptions around the level and success of reforms implemented. The difference between these scenarios is stark when seen over a ten-year period; a comprehensive reform program could see India become a US$10tn economy by 2030, while a muddled response would lead to an economy of only at US$7tn, over the same period.

India today is at a turning point to a new phase of its growth, one that will see it rise rapidly in global significance as its economy crosses US$3tn this fiscal year and multiplies exponentially over the coming decades to become the third largest market in the world (consensus places this occurring around 2024), propelled forward by a series of macroeconomic drivers that are fundamentally reshaping India and its role in the world.

This growth journey, however, is by no means going to be a smooth curve. While India’s core macro-drivers are largely independent of policy, as the research in a previous Signs of the Times argued, the global context in which India is operating and how the government responds to it will influence the pace at which India is able to scale. Structural reforms are needed to remove blockages that prevent India from fully leveraging its macro-drivers, while over the short term counter-cyclical measures are needed to deal with the impact of the global slowdown. The last decade has clearly demonstrated that India’s governments have both the ability to accelerate India’s growth through continued structural reform (as the Modi government did in its first term from 2014-2017), as well as to temporarily derail it through policy mismanagement or paralysis (as the last Congress government did, particularly in the period from 2011-2013).

As India enters this third phase growth, the appropriate supporting policies are critical, given that the country faces an increasing set of potential external dislocations, marked by trade wars and slowing global growth, with large developed economies facing ageing populations and China rebalancing to a lower growth trajectory. India’s growth is of course not decoupled from the world’s and has slowed down due to a combination of global and domestic factors, with growth forecasts lowered to to c.5.8-6.1% in the current year, albeit expected to recover to c.7.0% in 2020 and c. 7.4% over the medium term . India also needs to avoid internal dislocations. Such dislocations were responsible for China suffering a major setback in its rise following Tiananmen Square. India will similarly need to avoid the spiralling effects of its relationships with Pakistan which led to conflicts across the border in early 2019 and now increased tensions following its post-election decisions in Kashmir.

On the back of the strengthened electoral mandate secured earlier this year, the Modi government laid out its vision for transforming India into a US$5tn economy by 2024 . However, achieving this requires India to grow at c.8% in US dollar terms (or 10%+ in local currency terms given projected rupee depreciation) which in turn requires significant reforms to arrest the current slowdown and unlock investment and productivity. Over the last five years, despite a strong reform push by the Modi government across a number of areas , India has grown at 7.5% in local currency (and 4.7% in dollar) terms. At that pace, which is in line with current forecasts , India will reach the US$5tn milestone in 2026 - two years later than planned - and middle income status(c.US$5,000 per capita income) with a GDP of US$8tn GDP five years after that, in 2031.

Given its strong political mandate, the Modi government has an opportunity to implement critical reforms – including privatisation, financial, labour and land reforms – which could help unlock even higher growth. An aggressive reforms program which quickly arrests the current slowdown could help achieve these milestones two to three years faster. On the other hand, a muddled response which sees India struggle to recover to a high growth trajectory could further delay India’s rise to middle income status. The difference is even starker when compounded over the next two decades: a comprehensive reforms program could see India become a US$10tn economy by 2030 and US$30tn by 2040 vs. US$7tn and US$16tn, respectively, on its current trajectory. While nothing is cast in stone, the choices and actions of India’s government today will see India seize the moment or leave it for another government.

India’s Transformation: The First Two Phases of Growth

India took nearly 60 years from Independence in 1947 for its GDP to scale to US$1tn (or c.US$1,000 per capita). During this first phase of growth, the ‘The Long Haul from Poverty”, India’s GDP grew at 4.7% on average (the erstwhile ‘Hindu Rate of Growth’). Economic growth in this period was driven in large part by rapid population growth and the economy remained largely agrarian and volatile, with high rates of inflation.

Around 2006, as its economy scaled to US$1tn, India transitioned to the second phase of growth, “Economic Liberalisation and Participation”, in which it opened its doors to foreign investment across a range of sectors, helping growth accelerate to over 8%. While India was able to sustain this growth in the wake of the Global Financial Crisis, a series of high-profile corruption scandals in 2011-2013 resulted in reform stagnation which, combined with global liquidity factors, resulted in an outflow of capital and growth declining below 5%. It was against this backdrop that Mr. Modi, won his historic electoral mandate in 2014 and launched a series of ambitious structural reforms to revive growth, attract foreign investment and launch a big infrastructure development push, with growth recovering to over 8% by 2016.

Seen across these phases as a whole, average GDP growth has accelerated from 4.7% in Phase I to c.6.8% in Phase II, with significantly reduced volatility. This acceleration in growth was largely enabled by reforms that increased productivity, as population growth had largely stabilised at c.1.4% p.a. (see table below) India’s initial liberalisation triggered a rapid increase in economic participation as growth shifted decisively to the services (and to a lesser extent, manufacturing) sector, and India’s large and young workforce began to rapidly urbanise, adopt consumer technology and participate in the financial system. These fundamental drivers have also led to greater stability across a number of macroeconomic risk parameters including fiscal and current account deficits, inflation, foreign exchange reserves, and currency volatility. The table below captures the key growth metrics of India’s first two phases of growth.

India’s Current Growth Challenges

As India reaches and crosses a GDP of US$3tn this year, it also transitions to Phase III of its development trajectory, the “Rise to Global Significance.” This phase is projected to see India unlocking the significant potential of its population, with broadly distributed wealth creation, and increasing integration into global trade and capital flows, creating stimulus for sustained and enhanced economic growth. However, India’s transition is occurring at a time of increased global risk and uncertainty and its economy has slowed down sharply over the past 12 months to 5.0% in the quarter ended June 2019, its lowest growth in six years (see chart), broadly in line with the wider global slowdown across major markets over the last year, with India maintaining its ‘Growth Multiple’ of c.2.0x against the global economy. This slowdown has largely been due to a combination of three key inter-linked global and domestic factors:

  1. Global Growth Slowdown Due to Rising Geopolitical Rivalry, Protectionism and Slowing Global Trade. Global growth is expected to slow down to 3.0% in 2019 from 3.6% in 2018 and an average growth of 3.9% between 2014-2017. Factors such as the US trade conflict with China, the broader “America First” approach to trade and the UK’s Brexit is credited with being a major factor. This has impacted India’s export growth, which has slowed down sharply to 6-7%, after averaging nearly 20% during much of Phase II (between 2003-2011). Combined with increasing oil prices and India’s inelastic dependence on oil imports, this has led to a sharp deterioration in India’s trade balance. Based on multiple analysts’ estimates, slowing growth in India’s trading partners accounts for nearly half of the country’s current economic slowdown.
  2. Domestic Liquidity Issues Trigger a Broad-Based Slowdown in Credit Growth. Since mid-2018, India has seen a series of successive high-profile defaults and ratings downgrades for several large over-leveraged corporations and financial institutions. India’s non-bank financing companies (NBFCs), which accounted for a significant portion of credit expansion in the previous cycle, have come under increased stress and have sharply reduced lending, an issue also faced, albeit to a lesser degree, by India’s public sector banks (“PSBs”). While non-performing loan ratios have been reduced from their 2018 high water marks in excess of 15% and 10% respectively, India’s lenders will continue to struggle with high levels of non-performing assets for some time, and credit growth has accordingly slowed broadly across sectors, with overall domestic credit growth currently at c.10% (vs. c.15-25% during Phase II), negatively impacting overall investment levels.
  3. Weakening Investment and Consumption Growth. Weak external demand and reduced domestic liquidity, (along with the adverse impact of the recent structural reforms noted above on India’s large informal sector) have led to slower fixed capital formation and consumption growth, with consumer confidence weakening since early-2018. The slowdown has been heavily concentrated in industrial sectors, with the automotive industry (which accounts for c.40% of India’s manufacturing GDP) suffering a 23% contraction in passenger and commercial vehicle sales this year, implying a drop back to 2014-15 levels, and two wheeler sales, a proxy for the strength of the rural economy, down 16%, implying demand at c.2016 levels. Service industries have also not been immune from the slowdown, but have been relatively more resilient compared to the industrial and agricultural sectors.


Government Policy Responses and Reform Priorities

In the last several months, the government has announced a number of counter-cyclical policies and structural measures in response to the external and internal dislocations laid out above, with the goal of driving credit and liquidity and reviving growth (see left inset) including a significant cut in corporate tax rates to increase India’s global competitiveness, a recapitalisation of the public sector banks and a transfer of surplus funds from the Reserve Bank of India to the government to fund the stimulus.

Assuming an improvement in consumer confidence and domestic liquidity constraints, these measures are expected to help growth recover in the second half of the current fiscal year (FY2020 ) with forecasts currently in the 5.8% - 6.3%, increasing to 6.6% - 7.2% in FY2021, and to c.7.0% - 7.4% in the medium term.

Importantly, these forecasts do not factor in the impact of potential (and yet to be announced) longer term supporting policies and structural reforms that remove obstacles to India’s independent drivers. Given its renewed and unprecedented electoral mandate and the lack of an organised opposition at the national level, the Modi government has an opportunity to step up reforms significantly to further accelerate growth. Alongside the tactical measures to restore domestic liquidity and arrest the current slowdown already underway, Mr. Modi will need to focus on the high-priority reform areas which have not been substantively addressed to date and which could help shift India onto a sustainably higher growth trajectory. A recent Sign of the Times had laid out the proposed long-term policy agenda for Mr. Modi’s second term, which had identified three economic focus areas to focus on:


Focus Area I: Eliminating Blockages and Opening India to the World

1. Privatisation and De-Licensing. Kickstart the privatisation process in India, particularly in sectors like energy (300m people still lack access to electricity), financial services (asset quality in PSU banks is c.4x lower than private sector banks) and aviation (India’s national airline has losses of c.US$700m in the past year).

2. Labour Reforms. Overhaul India’s complicated labour laws and eliminate restrictions related to retrenchment and hiring, creating jobs for the c.12m Indians entering the labour force annually. Decentralise labour markets, creating flexibility to design regulations based on local and regional considerations.

3. Investment in Manufacturing. Facilitate investment and growth in India’s manufacturing sector by introducing ‘high impact’ reforms such as the creation of industrial corridors and tax-free manufacturing zones, the introduction of tax incentives for investors and reform of labour laws.

4. Reforming Financial Markets. Lift existing regulatory protections afforded to India’s public sector banks and restructure or privatise them to improve asset quality and productivity. Create appropriate regulatory frameworks to nurture technology-enabled start-ups addressing issues in payments, lending and insurance.

5. Shifting to Sustainable Energy Consumption. Develop renewables as a viable source of energy without compromising on overall growth. Initiate actions to reduce urban energy consumptions through energy efficient equipment, retrofitting lighting and insulation and building energy control systems.

6. Re-focus on Solving Corruption. Create further schemes to provide amnesty for entrenched old practices to be “forgiven” with penalties, follow up demonetisation with attacks on elicit properties, gold and other assets, address corrupt money flows.

Focus Area II: Catalysing India’s Independent Drivers

7. Overhauling Skills Development (Driver: Demographic Dividend). Revamp India’s skills development policy to focus on training and development in sectors with mass employment potential such as manufacturing. Additionally, launch a dual education system for 300+ occupations, creating millions of employable graduates.

8. Developing Urban Infrastructure (Driver: Mass Urbanisation). Accelerate the design of sustainable and smart urban habitats that maximise the value of India’s cities’ human capital in a cost-effective manner. Prioritise infrastructure development in smaller cities and rural areas in manage future urbanisation flows.

9. Leveraging Technology in Key Sectors (Driver: Mass Technology Adoption). Leverage digital technology across key sectors like financial services, healthcare and education in order to: (a) overcome key physical infrastructure gaps, (b) improve the quality of services delivered, and (c) drive overall sector productivity.

10. Easing Regulatory Restrictions in Consumption (Driver: Mass Consumption). Cater to the fact that Indian consumers are increasingly looking upgrade to more premium brands, by easing regulatory restrictions in the consumer and retail sectors – most notably FDI limits in multi brand retail – so as to increase the availability of products and brands available.

11. Driving Credit Creation and Growth (Driver: Mass Financial Inclusion) Leverage India’s increased banking base in order to grow India’s credit from 56% of GDP to 100% of GDP, promoting the creation of sophisticated financial savings and insurance products to deepen options available to households and businesses.

Focus Area III: Prioritising Inclusion

12. Financial Inclusion: Transition to “True Inclusion”. Deepen financial services penetration in the country by: (a) launching initiatives to improve financial literacy, and (b) creating a unified credit database that can help bridge the current information gap that has resulted in many borrowers not being able to access financing.

13. Healthcare Inclusion: Expanding Access. Leverage technology to bridge current supply and information gaps in the sector. Key initiatives include using telemedicine, e-pharmacies and virtual medical training to widen healthcare access and developing mobile applications and digital content to improve health awareness.

14. Education Inclusion: Providing Mass Education. Help India realise its demographic dividend by unlocking valuable human capital at scale, (a) bringing India’s education curriculum in line with global standards, (b) using digital platforms to provide cost-efficient quality education, and (c) prioritising female education so as to improve labour participation.

15. Digital Inclusion: Driving Productivity Gains Through Technology. Build on India’s rapidly growing digital penetration by promoting technology in the workplace to improve productivity and efficiency, launching industry-specific tailored digital education initiatives for individuals and organisations.

16. Workforce Inclusion: Creating Productive Job Opportunities. Create meaningful job opportunities that improve the India’s growth and productivity and allow individuals to increase their income levels. Facilitate investment, stimulate growth and drive job creation in the manufacturing and services sectors.

17. Embracing Diversity. Stimulate India’s democracy and unite the country by promoting shared values, preaching tolerance, prioritising personal safety for all Indians, protecting and supporting minorities, free speech and the press and ensuring impartial policing and justice.

In addition to these three economic focus areas, India will also need to focus on a series of key relationships to mitigate the risk of dislocations that have the potential to derail India’s economic execution, as well as to secure increasing global influence over the long term, recognising the increasing economic interdependence that India’s rise to global significance will inevitably bring.

Focus Areas IV: Avoiding Dislocations

18. Initiating Peace Talks with Pakistan. Ideally, seize the opportunity of India having the stronger military force and greater international support to reset India’s relationship with Pakistan by initiating meaningful discussions between the senior political leadership of both countries across a series of critical issues including regional security, counterterrorism, nuclear proliferation and Kashmir.

19. Collaborating with China. Develop an on-going strategic dialogue with China, building on recent discussions, to resolve the outstanding territorial disputes, secure support for peace with Pakistan and lay the basis for a cooperation in the region on multiple fronts.

20. Build a US Global ‘Special Relationship’. Develop a ‘special relationship’ as a strategic ally of the US based on shared values and common interests across trade, security and regional power, influencing the transition to the new world order underway.

21. Relationship with Internal Groups. Strengthen social cohesion and stability by promoting a pluralistic India actively including ethnic, religious, political and geographic minorities into the body politic.

22. Relationship with Key Pools of Capital. Build relationships with key pools of capital across major economies by removing barriers and facilitating access for domestic investment.

Beyond these immediate priorities, India will also need to undertake a series of additional longer-term measures to reinforce its rise to global significance as it grows into a superpower over the coming decade. Key initiatives relating to its future strategic positioning and securing global influence include (i) addressing key military gaps and strengthening capabilities to play a more active role in the global security landscape, e.g. in the Quad partnership in the Indian Ocean (ii) developing national independence across strategic assets including energy, food and water, and critical technologies, and (iii) raising India’s soft power in the international community through participation and leadership in multi-national institutions, e.g. the Commonwealth.

India’s Potential Phase III Growth Trajectories: Scenarios

India’s rise to a large middle-income economy is in many ways ‘assured’ given its fundamental growth drivers, at least over the long term. Clearly, what is of vital importance is the timing and therefore the recognition that the government’s policy agenda has a potentially material impact on the country’s long-term growth trajectory and speed of its transition. And while a 1-2% difference in GDP growth rates may not be particularly significant in any given year, when compounded over multiple years and considered at the scale of India’s economy, the differences are stark in terms of (i) the speed at which India can deliver economic development for its people and reach middle income status, and (ii) the scale of the economy that India could conceivably ascend to in the next two decades.

Three illustrative growth scenarios, each driven by the level of reforms achieved by the government, highlight the potential impact on the speed and scale of India’s economic ascendance over the coming one to two decades:

  • Scenario I – Baseline Growth Trajectory – 7.4%. This scenario assumes the current long-term forecasts for India’s growth trajectory, with a gradual improvement in consumer confidence and an easing of domestic liquidity constraints underpinning a recovery to c.6.6% next year and to c.7.4%, on average, in the medium-to-long term. Importantly, this scenario assumes a reduced reforms momentum, with continued incremental progress across a range of measures (including in key policy focus areas highlighted above) but without any major breakthrough in structural reforms. For example, in this scenario, the government would likely continue piecemeal and episodic privatisation of non-core assets, without a comprehensive program to privatise state-run industrial undertakings and banks. Similarly, it might restructure (or bail out) stressed banks, NBFCs and corporates to revive credit growth, but fail to enact any major changes in the current modus operandi of the banking system.
  • Scenario II – Partial Reforms Growth Trajectory – 8.5%. This scenario assumes a recovery to c.8.5% GDP growth on average in the medium term underpinned by (i) the government successfully navigating its way out of the current liquidity crisis and slowdown and rapidly reviving credit, consumption and investment in the near-term, and (ii) some measure of coordinated progress across the key reforms areas outlined above, leading to limited breakthroughs. For example, in this scenario, the Modi government would likely adopt a more rapid pace of privatisation in order to finance infrastructure investment and lower taxation, and the financial sector would be partially restructured through a corporatisation of and gradual disinvestment from the public sector banks (as opposed to privatisation), and reform of NBFC regulations. And in this scenario, on the other hand, labour laws, a difficult topic to address politically, would likely only be addressed on the margins, without a national overhaul.
  • Scenario III – Target Reforms Growth Trajectory – 9.5%. This scenario assumes that India accelerates rapidly to c.9.5% average growth over the next 20 years on the back of a sustained and comprehensive reforms program that addresses the key areas above, and others. Such a scenario would mean that the Modi government leverages its political capital to embark on a comprehensive privatisation program, where not only non-core assets, but also large government owned industrial entities and banks are also moved to private sector ownership. It entails the financial sector being successfully restructured thereby addressing the current domestic liquidity constraints while driving increased financial savings and private investment in the medium term. It would also mean that labour laws are overhauled to help drive mass scale job creation in manufacturing and services, picking up where the “Make in India” campaign left off, with employment and entrepreneurship enabled by reforms and investment in healthcare and education, driving rapid economic and social inclusion.

The key growth assumptions for these scenarios are as follows:

It is important to note the impact of foreign exchange on real GDP growth rates. Given the assumed level of macro-economic headwinds, including the Rupee’s projected long-term depreciation against the dollar, India will need to deliver excess growth to achieve its currency adjusted targets at any given level. While the rupee rate of depreciation against the US dollar has slowed from c.4.5% p.a. in Phase I to 3.2% p.a. in Phase II, it is projected to continue to weaken at the current rate of c.2% p.a. over the medium term. India’s 8% growth target in USD therefore implies an INR growth rate of 9.5%, further raising the bar for India to achieve its targets and necessitating far-reaching reforms than would otherwise be the case. A previous Sign of the Times had laid out a 10% growth agenda for the country. With absolute exchange rate control beyond the government’s capabilities, safely achieving 8% growth in US Dollar terms over the medium term will require India to shoot for this 10% agenda, recognising that a favourable swing in exchange rates would represent a source of additional potential growth upside (under any scenario).

The chart below illustrates India’s potential economic trajectories over the coming decade in the growth scenarios above. A comprehensive reforms program which increases India’s 7.4% growth by 1-2% over the medium term could unlock US$1.3-$2.7tn of additional GDP by 2030. In the Target Reforms scenario, India would reach to near middle income levels of US$6,500 per capita within the next decade, almost five years sooner than under its current growth trajectory. Moreover, at this point in time, India’s macro-economic drivers seem to limit the risk of further downside below the baseline case, with c.6.5% real growth appearing to be achievable even in the absence of any meaningful reforms, providing a strong platform onto which India’s government can build an accelerated growth agenda.

The difference between the scenarios is even starker when the different growth trajectories are compounded over two decades (see chart below). If it implements a sufficiently ambitious reform program in line with the Target Reform Scenario to unlock sustainable 9-10% growth (in local currency terms), India’s economy in 2040 could be nearly double the scale vs. its current trajectory a US$30tn economy vs. US$16tn, and a radically different country than the one we see today with per capita income of US$18,000, and larger than the US economy in terms of purchasing power parity.

Given the range of potential growth rates, the speed of the transformation and India’s rise to global macroeconomic and geostrategic significance will also be significantly different in the various scenarios. While target level reforms would potentially deliver Mr. Modi’s promised US$5tn economy within five years (in time for the next general election) and middle-income levels by 2030, a shortfall in reforms impact could delay achieving the US$5bn target by several years, with the time lag to longer term targets compounding accordingly. The table below summarises the both the speed at which India will attain various macroeconomic milestones, and the size of the economy it could create by 2040, in the different scenarios:

Conclusion: Critical Choices in the Rise to Global Significance

India’s current slowdown, while largely not of its own making, is a clear message to the country’s leaders about the need to act quickly and decisively on key reform priorities. For Mr Modi, the time has never been more opportune, given that his 2019 electoral mandate exceeds even the record one achieved in 2014, nor has the time been more urgent, given the rapid recent slowdown in India’s growth. This slowdown, if sustained, risks putting his economic legacy across two terms on the level of the previous Congress government, which is widely held to have been a time of missed opportunities and stagnation. While this comparison may be an unfair one, with the previous government having benefitted from the global liquidity boost following the Global Financial Crisis and the current one facing headwinds from the global economic slowdown, voters care more about results than about circumstances and Mr Modi will be judged accordingly in 2024.

Beyond the potential electoral impact in India’s next general election, the choices of the Modi government will have an important impact on India’s standing in the world. Mr Modi has travelled tirelessly in his first term to recover the credibility of India and expectations are high for him to continue the pace of reform and growth to drive India’s economic success. With it also comes India’s geopolitical position.

The third phase of India’s growth is after all the “Rise to Global Significance”, which implies a broader impact potential beyond its own borders. Much like China has done over the past decade, India in the coming decade will have the chance to build positions of dominance across key industry sectors, shape global trade flows and assume leadership positions on transnational issues and in global institutions. Such an India should be an increasingly important geostrategic ally to current superpowers as well as being a superpower in its own right and an integral part of the global security landscape. This of course presumes that India learns from China’s missteps and successfully positions itself as a sustainable partner based on shared values with the West. Failing to do so risks India falling into China’s footsteps, which was initially welcomed as an economic partner but was quickly perceived to be rival.

India’s government faces important strategic choices: it can focus on further domestic issues of a political nature, like Kashmir, which are no doubt popular among a large swathe of the domestic base, or it can focus on taking a billion people out of poverty. No doubt, the government feels better positioned to take Kashmiris out of poverty after its recent decisions on the region. However, it seems difficult to do both and the recent falls have begun to raise questions in the ability of the government to do both. Given every 1% in forgone GDP growth costs it nearly US$1.5tn over the next 10 years, and potentially derails US$6-8tn over the next two decades, the case for a renewed and sustained effort on economics seems clear.

As India successfully crosses Phase II this year, its growth makes a step change to a steep rising in the next phase. The Modi government faces external headwinds given the Indian economy is part of a global system that is slowing down. However, the momentum of its macro drivers – demographics, urbanisation, financial inclusion, consumerism and technology – provide for ready assets for the government to make India an island of prosperity in challenging times as global capital looks for returns.


1.    See the February 2019 Sign of the Times: India’s Journey to a US$5tn Economy: Growth Beyond Policy the April 2019 Sign of the Times: India’s Growth: Critical Turning Points and Geostrategic Implications: and the September 2019 Sign of the Times: Strengthening India’s Growth Multiple in the Global Slowdown

2.    ibid

3.    Sources: IMF, World Bank, OECD

4.    ibid

5.    Source: Based on various forecasts from Indian government, international institutions and macroeconomic analysts including the revised Reserve Bank of India and International Monetary Fund forecasts as of October 2019

6.    International Monetary Fund World Economic Outlook, Revised forecast as of October 2019

7.    Please see the Sign of the Times leader from February 2019 which laid out the case for a US$5 trillion economy and its key drivers and leader from April 2019 which laid out the structure of India’s trajectory in this new phase of growth

8.    Assuming c.4% inflation (based on current analyst forecasts), assuming c.2.0-2.5% annual depreciation of the rupee (in line with recent performance), India would need to grow 10-10.5% in local currency terms

9.    Please see the July 2019 Sign of the Times July 2019, Delivering on the Victory in India’s 2019 General Election, for a list of the Modi government’s key reforms in its first term

10.    7.5% average annual real GDP growth (in INR) less 2.8% average annual INR depreciation between FY2015 and FY2019

11.    Assumes 4.0% inflation and 2.5% annual depreciation of the Indian rupee (based on current analyst forecasts)

12.    Source: McKinsey Global Institute

13.    See the June 2019 Sign of the Times: Delivering on the Victory in India’s 2019 General Election

14.    The standard deviation of GDP growth fell from 2.9% in Phase I to 1.5% in Phase II

15.    While inflation has averaged 6.3% in Phase II, it has declined sharply from an average of 8.6% in 2007-2013 to 3.6% in the last five years

16.    Excludes the period from independence until 1970 when India was under a fixed exchange rate regime with the rupee pegged to the US dollar

17.    Source: IMF World Economic Outlook October 2019

18.    Source: UNCTAD World Economic Situation and Prospects 2019, World Bank Global Economic Prospects June 2019, IMF

19.    Source: Reserve Bank of India

20.    Source: Goldman Sachs Economic Research, India’s Economic Slowdown: This Episode is Different, August 2019

21.    Source: India Ratings and Research (Fitch)

22.    Source; Society of Indian Automobile Manufacturers

23.    Year ending 31st March 2020

24.    Reflects current range of forecast from macroeconomic analysts and the Reserve Bank of India

25.    See the June 2019 Sign of the Times: Delivering on the Victory in India’s 2019 General Election

26.    See the August 2016 Sign of the Times, “Restructuring the Nation’s Financial Sector for 10%+ Growth”

27.    See the February 2012 Sign of the Times: India Wide Open – Transforming India Now for 2040