Marching Towards Third Largest economy and Beyond - 2
The more globalised the rupee is, the more it would become vulnerable to external shocks in terms of commodity price fluctuations or global interest rates. In such a scenario, it would be difficult for RBI to ensure exchange rate stability. — Vinod Johri
In the previous article, we discussed the path of Bhartiya economy from globally tenth slot to fifth largest economy, epochal decisions of the Union Government and phenomenal progress in fields of science & technology and artificial intelligence. The growth of our economy resonates in the highest ever monthly collection of GST at Rs. 2.10 lakh crore in April 2024 and over 6 lakh ITRs filed with Income Tax Department in April 2024 itself. Further discussion is continued in this article.
Metaverse
The world is transforming too fast so the challenges are growing multi-dimensional. The technology is surpassing all economic models, principles, rules, standards and recognitions. Technology has grown at a breakneck pace in the last decade, and we should expect even more in the coming decade. Yes, I am talking about Metaverse virtual world reshaping economy. This is the next generation of internet, say Web 3.0 for Gen Z and millennials.
The metaverse is a network of interconnected virtual worlds that may be accessed through a variety of devices such as virtual reality headsets, augmented reality systems, cell phones, and PCs. Key principles of the metaverse include decentralisation, interconnection and inter-operation, safety and trust. It is a simulated digital environment that incorporates various technologies and social media concepts to create areas for rich user interaction that mirror the actual world. Metaverses are powered by blockchain technology.
The best of Government policies on self-reliance, Atmanirbhar Bharat, swadeshi and social welfare face stiff challenges of latest technology and mandate quick remedies to adopt what is beneficial for the country and guard against evil effects as we did to cryptocurrency.
Opportunities across multiple industries include higher education, medical, military and other types of trades can deliver a more immersive learning experience. According to an analysis by Bloomberg and data from Newzoo, IDC, PwC, Statista, and Two Circles, the potential worldwide revenue from metaverse technologies could approach $800 billion in 2024, up from about $500 billion in 2020. The Government needs to sensitize policy makers to evaluate impact of metaverse economy in national perspective while making its best use in education, tourism, digital currency, creation of jobs and reaching masses to sensitize on environment. Opportunities are immense and we have to tap metaverse technology to the highest advantage to our economy and governance.
Highway towards the 3rd Largest Economy
The highway towards the 3rd largest economy is on solid pillars of high GDP growth, technology, manufacturing, infrastructure, national security, exports, revenue growth, Innovation and R&D, Intellectual property rights, health, education, skilling, robust start up ecosystem and service sector while this list is endless.
While 3rd Quarter of FY 2023-24 pegged GDP at growth rate of 8.4%, the GDP growth for FY 24 is expected at 7.6%. GDP growth rate in Q1, Q2 and Q3 are consistently above 8%.
Semi-conductor Projects
The Union Government approved three semiconductor projects worth Rs.1.26 Trillion including the country’s first Rs. 91000 crore similar conductor fabrication proposal by TATA group in partnership with Taiwan based semiconductor giant at Dholera, Gujrat. The other major project is also by Tata group - Rs. 27000 crore assembly, test, marking and packaging project by Tata semi-conductor Assembly & Test at Morigaon, Assam. The third carrying an investment of Rs. 76000 crore is of CG Power in partnership with Japan based company at Sanand, Gujrat. The main challenge is from China which discussed as a part of “Global Challenges” in this article. The Prime Minister Shri Narendra Modi ji says that it will raise our country’s profile in global semi-conductor supply chain.
Mobile Manufacturing
Mobile manufacturing has grown 21 times over 10 years, valued at Rs. 18,900 crore inn 2014 to Rs. 4.1 Lakh crore in the current year. Domestic mobile manufacturing caters to 97% mobiles for internal consumption. Apple and Samsung have catalysed the spur in domestic mobile production.
Oil Refining Industry
The oil refining industry is gaining one of the most vital factors in the growing economy on way to globally third biggest slot. The scope of this industry is gaining momentum to the extent of being the largest exporter of oil-based products after China which is considering slowing down the oil refining industry for certain reasons. Oil refining industry has issues of carbon emissions, the vital concern of COP28 besides dependency on crude oil imports. It is important to note that Bharat is one of the major exporters of refined products with a net export close to 1 million barrels per day (MMb/d) in 2022. To make Bharat a refinery hub, there is a need to secure long-term crude oil supply, given the domestic demand-supply mismatch. Hon’ble Prime Minister Shri Narendra Modi ji declared investments of $67 Billion to improve the energy mix. On February 6, 2024, in his address at inauguration of Bharat Energy Week 2024, Hon’ble Prime Minister Shri Narendra Modi ji said “Additionally, we have solidified our position as one of the largest refiners globally, with our current refining capacity surpassing 254 Million Metric Tonnes per Annum (MMTPA). By 2030, we aim to elevate Bharat’s refining capacity to 450 MMTPA.” The country’s refining capacity has increased from a modest 62 million tonne annually in 1998 to 254 MMTPA. Our refiners would add 56 MMTPA by 2028 to increase domestic capacity to 310 MMTPA.
Rooftop Solar installations
The Union Government has also approved Rs. 75000 crore for rooftop solar installations in 10 million houses.
Progress Data
Some comparable data shows fast paced growth in crucial sectors directly impacting the people in the last 10 years. The direct tax collections have increased from Rs. 6.38 Lakh crore in the year 2013-14 to Rs. 22 Lakh crore in the current financial year. The foreign exchange reserves have increased from US $ 303 billion to the present reserve of US $ 626 billion. The functional airports have increased from 74 in 2014 to 149 in 2023. The number of universities have increased from 676 in 2014 to 1168 in 2023. Infrastructure capital expenditure has increased from Rs.1.57 Lakh crore to Rs.11.11 Lakh crore in FY 2024-25 (Interim Budget). Ease of doing ranking has improved from 142 in 2014 to 63 in 2023. Metro rail network has increased from 5 cities in 2014 to 20 cities in 2023. Renewable energy capacity has increased from 76 Giga watt in 2014 to 181 GW to 2023. The expense on welfare schemes in social sector has increased from Rs.6.6 Lakh crore in 2013-14 to Rs. 22.4 Lakh crore in last ten years. Total 24.8 crore people have come out of poverty line in last 9 years. The GDP has increased from US $ 1.675 Trillion in FY 2010 to US $ 4.11 Trillion in FY 24 (projected) has rode to 5th largest economy from 11th rank.
Bharat signed trade deal with European Free Trade Association (EFTA) which includes Iceland, Liechtenstein, Norway, and Switzerland after more than 15 years of negotiations and it will remove import tariffs on industrial goods from EFTA states. The agreement entails $100 billion worth of investments across a range of sectors in India, including manufacturing. The agreement enhances market access and simplifies customs procedures making it easier for Indian and EFTA businesses to expand their operations in the respective markets. The agreement further aims to facilitate and promote investment opportunities between the Parties.
International Monetary Fund (IMF) has re-classified Bharat’s de facto exchange rate regime from ‘floating’ to ‘stabilised arrangement’. The exchange rate variability for 6 months to 13 months till October 2023 has been between 1.88 to 3.26 with minimum rate of Rs. 80.6483 per US dollar to maximum of Rs. 83.2746 per US dollar. IMF has stated that from December 2022 to October 2023, the Rupee - Dollar exchange rate moved within very narrow range, suggesting that Bharat’s foreign exchange intervention has likely exceeded levels necessary to address disorderly market conditions.
The recently concluded Asia-Pacific Economic Co-operation (APEC) summit in Francisco in Nov. 2023 witnessed significant progress in negotiations on the Indo-Pacific Economics Framework (IPEF). THE 14 members of the IPEF announced a substantial conclusion of negotiations for Pillars 3 and 4 - clean economy and fair economy of the negotiating agenda. This follows the earlier conclusion and declaration of the legal text for agreement for Pillar - 2 on supply chains.
Global Capability Centres (GCC) started in Bharat as back-office operations. Today, they are at cutting edge of technology, driving key initiatives of their parent companies. It is estimated that GCC hiring will rise by 12.9% in the year 2023, on top of the 1.7 million employees, the segment had at the end of 2022. There may be an addition of 2.1 lakh employees.
Rupee in international trade
Ever since the Reserve Bank of Bharat brought out a circular on International Trade Settlement in Bharatiya Rupees on 11th July 2022, Global rupee trade-off has got a good start. Bharat’s recent deal with the UAE will allow our exporters of oil to pay in rupees and lead to the development of Bharat’s Rupee - United Arab Emirati Dirham market. Our exports to Russia in April - December period of 2023 was US $ 3.1 Billion which is 41% up over the corresponding period of previous year. The jump is attributed to the new mechanism of trade settlement in rupees. Our efforts towards internationalizing the rupee will prove to be substantially beneficial. In March 2023, the RBI has put in place the mechanism of rupee trade settlement with as many as 18 countries - Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda, and UK have been allowed to open special Vostro rupee accounts (a foreign bank account in Bhartiya Bank) for settling payments Bhartiya rupee. The experts have pegged the near - term potential of rupee denominated trade of $ 8-10 Billion, but raising the trajectory higher is fraught with challenges. First, the rupee is not fully convertible, so countries will hesitate to hold rupee balances. Bharat’s trade imbalance with major partners may also dampen prospects for rupee - denominated trade. So Bharat should strive for a more balanced trade relationship. There may also be domestic challenges. The more globalised the rupee is, the more it would become vulnerable to external shocks in terms of commodity price fluctuations or global interest rates. In such a scenario, it would be difficult for RBI to ensure exchange rate stability.
We will discuss global challenges from US, China, Japan and Germany in the third and final article next month.
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