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Economists Warn Of Global Slowdown, Likely To Impact India’s GDP Growth: PHDCCI

The International Monetary Fund (IMF) predicts a growth rate of 2.8 per cent which is lower than before and the composition of growth is changing

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Investing in digital infrastructure and the services industry is crucial for India's future growth, said Subhash Chandra Garg, Former Secretary, Government of India.

Speaking at an event organised by PHD Chamber of Commerce and Industry (PHDCCI), Garg highlighted the importance of being realistic about the potential for higher growth through industrialisation.

Garg emphasised three areas with significant growth opportunities, namely physical infrastructure, digital infrastructure, and the services industry. While there is still a need for investment in physical infrastructure such as railroads, airlines, shipping, and water communication to connect the country, the bigger opportunity lies in investing in digital infrastructure, such as data centers and telecom. 

"India has become a global center for designing programs, including the design of chips, which is a significant export. Furthermore, there are enormous opportunities to capture the global services market in accounting. With India's strong presence in digital and services, there is a high potential for growth in these areas," he added.

Garg also highlighted the importance of considering growth in the context of long-term and short-term or medium-term growth. Shri Garg encouraged India to learn from Japan's growth, where their per capita income grew massively, and their population started to plateau and decline over the years.

Dharamakirti Joshi, Chief Economist, Crisil provided insights into the global economy. According to him, the high level of indebtedness and uncontrolled inflation is expected to result in a slowdown of the global economy. 

The International Monetary Fund (IMF) predicts a growth rate of 2.8 per cent, which is lower than before and the composition of growth is changing. Advanced countries such as the US and Europe are expected to slow down sharply compared to other parts of the world, such as China. 

India is also likely to experience a slowdown in GDP growth from 7 per cent to 6 per cent in 2022-2023. This is due to the net negative impact of the slowdown in the US and Europe, which offsets the increase in Chinese growth. While India's exports to China only constitute 3.3 per cent of total exports, exports to Europe and the US are expected to slow down by 34 per cent.

Joshi also stated that investments will continue to support the economy, but the animal spirits-driven investment will be broad-based. In the medium term, growth is expected to pick up to 6.8% due to investment and infrastructure creation.

Prasenjit K. Basu, Chief Economist, ICICI Securities while presenting informed that the US is currently encountering a severe inflation issue due to an unprecedented increase in monetary growth over the last 23 months. 

"The average growth rate of 18.6 per cent is much higher than the maximum rate of 10.4 per cent seen in the previous 60 years. Despite a 5 per cent rate increase over the past year, inflation continues to rise, with core personal consumption expenditure inflation at 4.7 per cent year on year," Basu added.

Basu explained that the US has been in a recession since July of last year, as indicated by the consistently inverted yield curve and ISM manufacturing new orders falling below 50, which is a leading indicator of a recession. Additionally, exports from Asia to the US have been declining for the past few months. 

The IMF has predicted that the US economy will grow just under 1 per cent this year, with negative growth expected for the remainder of the year after an expected growth of 2-2.5 per cent in the first quarter. Meanwhile, China experienced significant growth over the past 25 years, while India is following closely.

Sakshi Gupta, Principal Economist, HDFC's Treasury Group, highlighted the importance of discussing India's growth prospects amid the global economic situation. She stated that India's projected growth rate of 6-7 per cent for FY 2024 would position it as the best among other emerging market countries. 

"This is due to the government's continued focus on infrastructure spending, with a substantial budget allocation of 10 lakh crores for FY24," Gupta added.

However, Gupta cautioned that the global economy is expected to slow down in 2023, with the US experiencing a growth rate of approximately 1 per cent, and the Eurozone and UK facing contraction. She attributed this to central banks tightening monetary policies over the last year, which could pose challenges for growth and businesses. 

Gupta urged business leaders and policymakers to recognise these challenges and plan accordingly.

Arun Dalmia, Co-Chair, Economic Affairs Committee believes MSMEs are crucial to India's growth, representing 75 per cent of the PHD chamber's 1.5 lakh members, providing employment opportunities, and contributing to rural industrialisation. 

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