India likely to become third biggest economy by FY28

 

India likely to become the third-biggest economy behind the US and China by FY28, two years earlier than initially expected, overtaking Germany and Japan, according to the International Monetary Fund (IMF) World Economic Outlook database.

India overtook UK to became the 5^th largest economy this year.

India's GDP would match Germany's in size to become the fourth-largest by 2025–2026.

The World Economic Outlook of the International Monetary Fund (IMF) predicts that it will surpass Japan in growth and move up to the third-largest position by 2027-28 (FY28). 

 

India’s rapid progress…

• Most developed economies hit hard by pandemic and war-triggered inflation
• They will grow marginally or even go into recession
• India’s growth also took a knock but economy expected to expand at good pace
• Rupee has depreciated less than many currencies against the dollar

…but not just relative out performance

• India has sound macro fundamentals.
• Inflation high,but is not skyrocketing.
• Current account deficit high but expected to moderate 
• Forex reserves down but still at nearly $550 b Fiscal situation is comfortable 
• Banks are in a strong position and credit cycle is picking up 

Why MNCs struggling and quiting India ????

A few  big names like  Metro AG, Holcim, Ford,  General Motors ,  Royal Bank of  Scotland, Harley -  Davidson,   Citibank   have chosen to pull the plug on their operations in India or downsize their presence here in recent years. 

This is something to wonder about , at a time when India is trying to position itself as an alternative to China, &  where many MNCs are looking to diversify their supply chain.

While the reasons  could be  company-specific .  In  some cases such as restructuring to curb losses, failure to crack the price-sensitive Indian market,  replicating western business model  blindly rather than   adopting  to a local model. Several have also given up on India due to regulatory flip-flops, high tariff barriers, red tape, perplexing land policies, infrastructure issues and others tied to the ease of doing business.

Ease of doing business in India has definitely improved over the last five years. However, to bring about this improvement, the government is constantly making regulatory changes which have taken some time to get used to. 

 

To make things worse, there are 26,134 imprisonment clauses in India’s business laws, according to an Observer Research Foundation report that highlights the risks faced by entrepreneurs and corporations in doing business in India.

To be sure, many  western MNCs, especially carmakers, had to leave India because of their own inability to crack the world’s fourth-largest auto market, resulting in poor sales.   There is definitely a lack of planning or understanding of the Indian markets among MNCs that have failed.  The competition is also very high and most foreign companies struggle to meet customer expectations. Cultivating brand loyalty in the Indian market is also very difficult, especially when companies succumb to product modifications i.e., making cheaper substitutes.

 

 

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