14 January , 2023 Fdiindia
According to UBS Securities, India’s next Major Growth Drivers are Capex, Manufacturing and Digitalization
According to brokerage firm UBS Securities India Private Ltd, even the pandemic could not stop India’s potential growth from stabilizing at 6 per cent currently.
The brokerage believes that the significant adoption of digitalization, an easing of financial sector weakness, and the government’s reform agenda to help India’s entry into global value chains all helped to reduce the danger of lower potential output owing to issues related to the pandemic.
However, challenges like the need to fill more jobs that are productive with a growing working-age population, concerns about deglobalization, and the burden of automation, still exist.
Capital Investment (Capex), manufacturing and digitalization, according
Let’s know about them in brief.
Capex to be supported by Policy Push
A turnaround in the investment cycle is crucial for maintaining India’s current growth rate as well as pushing the country to a higher path of development.
The investment rate of India reached its highest point of 39.8 per cent of GDP in FY11 and has since decreased to 27.3 per cent of GDP in FY21. A lot of things have contributed to this, including the negative effects of the global financial crisis, the issue of the twin balance sheet, i.e. high corporate sector leverage and high non-performing assets (NPA) in the banking sector, the subdued domestic capital markets, and more recently, the pandemic threat.
For the purpose of supporting broad-based consumption, an investment growth cycle is necessary for job generation. (Both in terms of quality and quantity).
The recent updates to the balance sheets of banks and corporations have, in the opinion of brokerage, set the stage for a short- to medium-term improvement in India’s investment cycle.
Digitalization boom to help boost productivity
In India, technological enablers have significantly increased over the past ten years, which include telecom, smartphone penetration, quick and affordable internet access, technology-enabled credit access and effective and inclusive payment systems.
The core digital economy serves as a major provider of value addition to the value added to the non-digital sectors because the forward linkages are stronger than backward connections.
Manufacturing and exports- Higher foreign direct investment (FDI) inflows are an enabler.
The brokerage gave claims that India must concentrate FDI flows in order to boost the competitiveness of its manufacturing sector and makes it an important link in the global value chain. FDI and the domestic investment cycle generally have a favorable correlation.
Under the correct situation, the transfer of technical and organization that comes along with these flows will assist in increased productivity, promote investments and contribute towards India’s’ progress.
“Notably, the financing mix of net capital flows to India has improved considerably over the past five years, due to the government’s policy reforms and higher FDI flows. Indeed, out of the total capital flow (net) of US$ 456 billion received during the past five years (FY16-22), about 70% were in stable FDI flows and the rest was in the in some portfolio and debt (including ECBs) flows. This compares with the previous ten years (FY06-15), When about 70 percent of the flows were non-stable , non FDI flows,” said the brokerage.
Due to India’s comparative advantage in international trade in services and the country’s services led-economy, the services sector has historically accounted for the majority of FDI inflows.