Speaking at the Lal Bahadur Shastri National Academy of Administration this week, Patra highlighted India's traditional strengths and advantages that will propel its growth in the coming decades.

New Delhi: In a major prediction about the Indian economy, RBI Deputy Governor Michael Debbrat Patra has predicted a promising economic future for India, suggesting that the country could become the world's second largest economy by 2031. Speaking at the Lal Bahadur Shastri National Academy of Administration this week, RBI Deputy Governor Patra highlighted India's traditional strengths and advantages that will fuel its growth in the coming decades.

The growth process has been primarily driven by capital accumulation, making investment the main lever of growth which has stabilized at 31.2 percent in 2021-23 and is showing signs of accelerating.

In his speech, now posted on the RBI website, Patra said: “Historically, investment in India has been financed through domestic savings, with households being the major provider of resources to the rest of the economy. During the period 2021-23, the gross domestic savings rate averaged 30.7 percent of gross national disposable income. Thus, unlike many countries, India does not have to depend on foreign resources, which play a minor and complementary role in the development process. The current account gap in the balance of payments remains modest at around 1 per cent of GDP in 2023-24. It protects the Indian economy from external shocks and provides viability and strength to the external sector.

Total External Debt of India

For example, India's gross external debt, which is the accumulation of current account deficits over time, is less than 20 percent of GDP and is almost entirely covered by the level of foreign exchange reserves, Patra explained. Second, the upward growth path that India is on is intertwined with macroeconomic and financial stability as inflation has fallen back into the tolerance band around the 4 percent target. This reflects the combined effect of stable monetary policy action and supply management. In fact, core inflation, which excludes food and fuel and is most favorable to monetary policy, has fallen to its lowest level to date.

Along with macroeconomic stability, financial stability is being strengthened through prudent fiscal policies and active on-site supervision, which leverages SupTech, Big Data analytics and cyber security exercises. India's financial sector is primarily bank-based. Gross non-performing assets (GNPA) in the banking system have declined to 2.8 per cent of total assets by March 2024 from their peak in March 2018, he added. Another aspect of macroeconomic stability is the ongoing fiscal consolidation.

As a result, general government debt, estimated by the IMF at 81.6 percent of GDP at the end of March 2024, is expected to decline to 78.2 percent by the end of the decade. Our projections show that if spending on re-skilling/de-skilling the labor force in the most productive sectors of production, investing in digitalisation and promoting energy efficiency is increased, general government debt will fall to 73.4 per cent of GDP by 2030-313. The IMF's forecast for the debt ratio to rise to 116.3 percent in 2028 for advanced economies and 78.1 percent for emerging and middle-income countries is significant, Patra said.

Patra also explained that a powerful growth accelerator emerges from India's favorable demographic dynamics. India's population is now considered its greatest asset from an international perspective, especially when the rest of the world is rapidly aging and depopulating.

Today, every sixth working age person in the world is an Indian. India's demographic dividend is expected to last for more than three decades. All efforts must be made to seize this opportunity, he said. Patra pointed out that another growth multiplier is India's digital revolution. India is emerging as a global leader in leveraging digital technology for transformative change.

JAM's trinity – Jan Dhan (basic no-frills accounts); Aadhaar (Universal Unique Identification); and mobile phone connections – expanding the formal finance sector, fueling tech start-ups and enabling the targeting of direct benefit transfers. India's Unified Payments Interface (UPI), an open-ended system that powers multiple bank accounts into a single mobile application, enables seamless inter-bank peer-to-peer and person-to-merchant transactions. Payment systems in India work on a 24 by 7 by 365 basis. The RBI Deputy Governor further said that internationalization of UPI is going fast.

(with input from agencies)