Arvind Panagariya, the Chairman of the 16th Finance Commission, provided a fresh perspective on India’s economic prospects at the ICPP Growth Conference in New Delhi. He projected that India’s economy would grow by 6.4% in FY25, signaling a healthy recovery post-COVID despite facing some loss of momentum. This growth rate, though slightly lower than previous years, reflects the resilience of India’s macroeconomic fundamentals.

Healthy Short-Term Growth Despite Challenges

Panagariya acknowledged the macroeconomic stability in India, noting that the RBI has brought interest rates down to 6%. This is expected to help manage inflation effectively. He further stated that inflation is “alright”, with a target of 4% being desirable for long-term stability. “Pushing it down would be counterproductive,” he warned, signaling that moderate inflation plays a crucial role in a growing economy.

Although the credit growth has moderated, falling to 11% from 20% last year, Panagariya remains confident that steady growth will continue without major disruptions. He stressed that maintaining this steady pace will be essential to sustaining India’s robust economic performance.

Looking to 2047: A Vision for India’s Per Capita Income

Panagariya outlined an ambitious long-term vision for India, aiming for a per capita income of $14,000 by 2047. To achieve this, India needs to grow its gross national income (GNI) at an average rate of 7.8% annually, even as population growth slows to just 0.5%. This long-term goal, though challenging, is deemed possible by Panagariya, given India’s consistent growth trajectory from 2003 to 2020, averaging 9% growth in real dollar terms.

Economic Resilience Amid Global Shocks

India has faced multiple economic shocks over the last two decades, including the global financial crisis, COVID-19, and a banking collapse, yet the economy has shown remarkable resilience. Even in the face of these challenges, India managed to maintain an average annual growth of 7.8% from 2003–2020. Panagariya credited India’s steady growth to its ability to weather crises and hold strong momentum during difficult periods.

Trade Tensions and Opportunities

Looking forward, Panagariya highlighted the trade tensions that are expected to impact India’s growth trajectory. He particularly pointed to the ongoing US-China trade conflict, which he believes will continue beyond the Trump administration. The fallout from this conflict is expected to have a ripple effect on global trade, with restrictions on imports from China, Vietnam, and Cambodia. However, Panagariya saw opportunities for India in this situation. If India can successfully negotiate with the US, it would open the door for further negotiations with Europe, positioning India for stronger trade deals.

High-Growth States Leading the Charge

Panagariya also pointed to the success of certain states that have demonstrated high economic growth due to infrastructure, port access, and global integration. States like Tamil Nadu, Karnataka, Telangana, Maharashtra, and Gujarat are leading the charge in India’s growth, benefiting from their geographical advantages. Haryana and Goa are also notable for their strong performance.

However, Panagariya stressed that Bihar—despite its challenges—holds significant potential for improvement, urging further efforts to boost its economic prospects.

Fiscal Challenges and Solutions

On the fiscal front, Panagariya acknowledged the issues with fiscal deficits in certain states. These fiscal challenges will take 5–7 years to resolve, according to Panagariya, but they should not overshadow the broader economic trajectory. He believes that India’s fiscal discipline, coupled with high-growth states’ performance, will ultimately help India stabilize and reach its ambitious economic goals.

Conclusion: A Bright but Challenging Future

India’s economic growth in the near term looks promising, with 6.4% growth projected for FY25, a resilient recovery from the COVID crisis, and stable macroeconomic conditions. Panagariya’s long-term vision for India, including a $14,000 per capita income by 2047, reflects confidence in the country's continued economic ascent. While trade challenges, particularly in light of the China-US conflict, may present obstacles, there are also significant opportunities for India to emerge stronger, especially with favorable trade agreements. The role of high-growth states and the resolution of fiscal challenges will also be key to sustaining India’s upward trajectory in the years to come.

The Upcoming IPOs in this week and coming weeks are Srigee DLM, Manoj Jewellers.

The Current active IPO are Wagons Learning, Kenrik Industries, Arunaya Organics.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst.