RBI: India needs 7.6% growth for 25 years to be titled Developed

If India wants to
become an advanced economy, its real gross domestic product (GDP) would have to
grow at a rate of 7.6% per year over the next 25 years. This would mean that the
current per capita GDP would have to go from $2,500 to $22,000, according to a
paper released on Monday by the Reserve Bank of India (RBI) Economic Research
Department.

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It said that the only
way to get to development in a sustainable way is to spend physical capital
and make big changes in education,
infrastructure, health care, and technology to boost productivity. It also
said that for this change to happen, the government, business sector, civil
society, and citizens must work together.

By 2047, a country will
be high-income if its nominal GDP per person is more than $21,664.
India needs a real GDP CAGR of 7.6% from 2023-2024 to 2047-2048 in order to
reach this goal, according to a paper in the RBI bulletin. But it also said
that the best India has ever done over a time of 25 years is a compounded
annual growth rate (CAGR) of 8.1% between 1993-1994 and 2017-2018.

The RBI bulletin said
that the world economy is showing signs of slowing down, especially in the
manufacturing and investment sectors. For the Indian economy to become advanced, it would need to keep growing at a higher single-digit rate
for a long time.

The global composite
purchasing managers’ index (PMI) fell from 54.4 in May to 52.7 in June. This is
one of the high-frequency measures. Also, the global services PMI stayed in the
expanding zone despite a sequential slowdown, but the global manufacturing PMI
fell to a 6-month low of 48.8 in June due to a drop in new orders, the report
said.

“Weakening global
manufacturing contributed to a decline in international trade. Nowcasts of the
UN Conference on Trade and Development which were released in July indicate
that world merchandise trade growth will barely enter positive territory at
0.86% in Q3:2023 from -0.43% in Q2:2023, while nowcasts for growth in services
trade are estimated at 1.55% for Q2 and 0.20% for Q3,” the report stated.

In the first half of
June, there was an increase in commodity prices around the world, followed by a
decline. The Food and Agriculture Organisation (FAO) food price index decreased
by 1.4% month-over-month in June to 23.4% below its apex recorded in March
2022, as prices of vegetable oils, cereals, sugar, and dairy products
moderated, according to a report.

Despite a 3.2% decrease
in June, annual sugar price inflation was reported to reach 30% in June.
In June and the first half of July, the price of crude oil remained in a tight
range between $75 and $77 per barrel, as demand slowed. ”Saudi Arabia’s
decision to extend its supply reduction through August increased market
volatility,” it said.

The war against
inflation is by no means won. The increase in food
prices caused by the monsoon in June pushed up inflation. This supports the
view of the Monetary Policy Committee that the war on inflation is far from
over. According to the RBI’s report, the Monetary Policy must maintain its
trajectory on the difficult final leg of the journey to achieve target inflation.

After four months of
decline, inflation rose to 4.81 percent in June due to a rise in food
prices. Despite a sequential decline in economic activity in June, the central
bank believes that India will be the largest economy with the highest growth
rate in the world.

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