The economic growth forecasts for India are showing reduced rates indicating reduction in the growth for the current financial year. A number of factors are contributing to this reduction though India remains one of the fastest growing economies among comparable countries. A new industrial policy is in the offing whereas we see tightening of rules for investments by certain class of foreign portfolio investors.

World Bank – The World Bank recently released its flagship report, Global Economic Prospects June 2023 edition. As per the report, growth in India is projected to be 6.6 percent in FY2022/23, a 0.3 percentage point downward revision from January (as reported by Asia Law Portal here). This slowdown is attributed to private consumption being constrained by high inflation and rising borrowing costs, while government consumption is impacted by fiscal consolidation. Growth is projected to pick up slightly to 6.4% for FY 2024/25 and 6.5% through FY2025/26, as inflation moves back toward the midpoint of the tolerance range and reforms payoff. The report mentioned that in India, growth in early 2023 remained below what it achieved in the decade before the pandemic as higher prices and rising borrowing costs weighed on private consumption. However, manufacturing rebounded into 2023 after contracting in the second half of 2022, and investment growth remained buoyant as the government ramped up capital expenditure. Private investment was also likely boosted by increasing corporate profits. Unemployment declined to 6.8 percent in the first quarter of 2023, the lowest since the onset of the COVID-19 pandemic, and labor force participation increased. India’s headline consumer price inflation has returned to within the central bank’s 2-6 percent tolerance band. Growth in India is expected to slow further to 6.3 percent in FY2023/24 (April-March). India will remain the fastest-growing economy (in terms of both aggregate and per capita GDP) of the largest Emerging market and developing economies (EMDEs).

Organisation for Economic Co-operation and Development (OECD) –  The OECD recently released its OECD Economic Outlook Volume 2023 report titled ‘A Long Winding Road’. As per the report, weak global demand and the effect of monetary policy tightening to manage inflationary pressures will constrain the economy in FY 2023-24, limiting real GDP growth to 6%. Moderating inflation and monetary policy easing in the second half of 2024 will help discretionary household spending regain momentum. This, along with improved global conditions, will help economic activity to accelerate, with growth of 7% in real GDP in FY 2024-25. Despite an impressive growth and development record, daunting challenges remain. Creating good jobs is the most promising pathway to reduce poverty, which is particularly high in the female population. Increasing investment in education and vocational training, and updating labour laws, would help to achieve this objective. India is particularly vulnerable to extreme heatwaves and must make progress in mobilising resources for investment in the green economy.

New Industrial PolicyAn inter-ministerial consultation is going on for formulation of a new industrial policy, which would aim at building a globally competitive business environment to increase manufacturing and exports, a top government official has said. This would be the third industrial policy after the first in 1956 and the second in 1991. It is likely to replace the industrial policy of 1991 which was prepared against the backdrop of the balance of payment crisis. The proposed policy is likely to suggest reforms to foster and create a globally progressive, innovative and competitive industrial ecosystem. The six core objectives of the policy may include focus on competitiveness and capability; economic integration and moving up the global value chain; promoting India as an attractive investment destination in the world; nurturing innovation and entrepreneurship; and circular and sustainable ecosystem. After the completion of the consultations, the department is likely to approach the union cabinet for its approval.

Foreign Portfolio InvestorsMarkets regulator, Securities and Exchange Board of India (SEBI), has decided to ask for enhanced disclosures from a certain class of Foreign Portfolio Investors (FPIs). To ensure greater transparency it will mandate disclosures such as economic interests, ownership details and other granular details. These norms would be applicable for FPIs that concentrate holdings in a particular corporate group. SEBI wants to bring about these changes in order to prevent possible circumvention of Minimum Public Shareholding (MPS) requirements and potential misuse of the FPI route. SEBI wants to ensure that there is no opportunistic takeover of Indian companies. PIs holding more than 50 per cent of their equity Asset Under Management (AUM) in a single corporate group or ones that hold more than Rs 25,000 crore in the Indian markets would be required to furnish such details. However, certain entities such as government and government-related investors, pension funds and public retail funds, certain listed ETFs, corporate entities and verified pooled investment vehicles meeting certain conditions would be exempted from making these disclosures. Applicants with investors contributing 25 per cent or more in the corpus, mentioned in the Sanctions List notified by the UN Security Council, are ineligible for registration as FPIs.

Posted by Sourish Mohan Mitra

Sourish Mohan Mitra, India-qualified lawyer from Symbiosis Law School, Pune and currently working as an in-house counsel in Delhi, India; views expressed are personal; he can be reached at; Twitter: @sourish247

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