A look at Indian economic policymaking in 2023

India was one of the fastest growing major economies in the world in 2022. While it was impacted by global headwinds, its economy benefitted from strong macro fundamentals and robust domestic demand.

According to the World Bank, India’s economy is expected to growth at 6.9% in the 2022-23 financial year. We speak with Ritesh Kumar Singh, chief executive officer and chief economist at Indonomics Consulting, about the effectiveness of flagship policies such as Make in India, policy challenges and imperatives for 2023.

Unravel: Are Indian businesses benefitting from Make in India?  

Ritesh Kumar Singh: The China plus 1 strategy increasingly being adopted by top MNCs, and Prime Minister Narendra Modi government’s flagship manufacturing initiative—the Production Linked Incentive (PLI) scheme—are expected to benefit indigenous manufacturers. However, the benefits are not uniformly distributed. 

As the PLI aims to incentivise production by selected large manufacturers, most of the direct benefits are bound to be appropriated by them. On the other hand, forced formalisation attempts—especially through the badly designed and poorly implemented GST—has led to increasing compliance burden on all kinds of smaller business entities. 

Increases in import duties to support PLI beneficiaries often impose cost inefficiencies on downstream manufacturers. Besides, they increase the relative attractiveness of domestic markets and in turn neglect exports. As a result, India’s attempts to boost manufacturing have met with limited success so far. 

Unravel: What are some policy decisions you hope to see in India next year to support industrial/ economic growth? 

Mr Singh: I think the Modi government will continue with its infrastructure push, which makes sense as there is still much to be done. Second, it will continue to include more industries under the purview of the PLI. The Indian corporate sector expects some kind of support to boost demand which is capping private investment. I expect modest cuts in income tax liabilities, especially of lower income people, to support demand. 

Unravel: What is your chief concern in relation to the Indian economy in 2023? 

Mr Singh: That there will be much focus on manufacturing, which contributes not more than 20% of Indian GDP, and a neglect of SMEs and the services sector in general. Jobless growth continues to be a major macroeconomic challenge for the Indian economy. Besides, continued contradictory regulations cap private investment and that will cap GDP growth. The imposition of price caps and export curbs will continue to deter investors. Thus, the PLI may subsidise production within the country and, in turn, exports, but a stronger rupee penalises exports. Similarly, too much focus on the domestic market ends up neglecting the export market, which is a substantially bigger opportunity.

Unravel: In your view, what are some bright spots in the Indian economy as we look ahead into the new year? 

Mr Singh: I think, despite official neglect, the resilient services sector—helped by labour cost advantages—and the infrastructure sector and related industries such as cement and steel will continue to do well in 2023. Countries and companies trying to buy less from China will help net exporting sectors (such as chemicals and pharmaceuticals) and Indian companies despite a worsening global macroeconomic environment.