**India’s Economic Optimism Surges, But Policy Continuity Remains Vital**
As India’s economic growth continues its upward trajectory, Rob Subbaraman, Nomura’s chief economist for Asia (ex-Japan), emphasizes the crucial role of policy continuity in maintaining this momentum for the next five years.
“The Modi administration has done a commendable job in its second term,” Subbaraman stated, acknowledging the back-to-back victories of Modi and his Bharatiya Janata Party since 2014. With national elections currently underway, Modi is heavily favored to secure a third term.
Nomura predicts an impressive average growth rate of 7% for India in the next five years, assuming the policies responsible for current growth remain intact. This projection significantly outperforms Nomura’s growth outlook for China (3.9%), Singapore (2.5%), and South Korea (1.8%).
**Policy Continuity: The Key to Sustained Growth**
“Irrespective of the election outcome,” Nomura analysts stress, “policy continuity and a focus on macroeconomic stability are essential pillars of growth.” This underscores the importance of maintaining the policies that have fueled India’s economic success to date.
Under Modi’s leadership, India’s economy is poised to expand by 6.7% this year, surpassing China’s projected growth of 4%. Large economies outside Asia, such as the U.S., are also expected to experience slower growth at 2.8%.
**Rising Investment Bolsters the Economy**
“Investment is a key driver of India’s growth,” Subbaraman explains. “Investment as a share of GDP is rising, and all indicators point to an ignition of private capital expenditure, including foreign direct investments (FDI).”
While Nomura remains optimistic about India, its chief economist for India and Asia (ex-Japan), Sonal Varma, cautions that challenges remain. India needs to strengthen its economy to boost employment and mitigate the risks of global spillovers.
**Ambitious Plans Propel Manufacturing**
India aspires to become a global manufacturing hub, with investments in the sector expected to drive economic growth. Ashwini Vaishnaw, India’s Minister for Railways, Communications, and Information Technology, predicts annual GDP growth of up to 8% for several years as India focuses on enhancing its manufacturing capabilities.
The 2025 interim budget allocated 11.11 trillion rupees (3.9 billion) in capital expenditure, an 11.1% increase from the previous year. However, Nomura notes that India’s share of global merchandise exports remains around 2%. “The manufacturing takeoff is still in its early stages,” Nomura analysts state, “and its full impact will likely become evident over the next 3-5 years.”
**Financial Services Fuel Economic Growth**
India’s financial services sector, contributing to approximately 7% of GDP, is playing an increasingly prominent role in the country’s economic expansion. “India has successfully addressed its non-performing asset problem before the pandemic,” Subbaraman explains. “Bank supervision and requirements are stronger than ever before.”
As India continues its economic journey, sustained growth will hinge on maintaining policy continuity, boosting investment, nurturing manufacturing, and harnessing the potential of the financial services sector. By addressing these crucial aspects, India can secure its position as a major player in the global economy for many years to come.
Data sourced from: cnbc.com
