RBI Estimates Q4 GDP Growth At 7.3%, Says India Must Grow At 8-10% To Reap Demographic Dividend

The Reserve Bank of India's April bulletin indicated sustained momentum in domestic demand conditions for March 2024. Economic activity during the fourth quarter of the previous fiscal remained resilient, albeit with some moderation in March, as compared to the previous month. The country's central bank, using its economic activity index, forecasted GDP growth for the January–March quarter at 7.3%.

The conditions in India are shaping up for an extension of a trend towards an upshift in real GDP growth, supported by strong investment demand and positive business and consumer sentiment, it said.

"In India, conditions are shaping up for an extension of the trend upshift that took the average real GDP growth above 8% during 2021-24," the central bank said.

"In order to achieve its developmental aspirations over the next three decades, the Indian economy must grow at a rate of 8-10% per annum over the next decade to reap the demographic dividend that started accruing from 2018 and, as calculations show, will last till 2055."

So far, capital deepening is powering the step-up in the growth trajectory, led by sustained public investment, and supported by productivity improvements, it said.

For India to harness its favourable demographics and achieve the escape velocity required to breach the low middle income barrier, the developmental strategy over the next few decades must center around extracting the maximum possible contribution of its young and rising labour force to the growth of GVA, the central bank explained in the bulletin.

Raising employability, with a focus on the formalisation of employment opportunities for the youth and women should continue to be the hallmark of the strategy. With the working age population set to expand at the rate of about 9.7 million per annum during 2021-31 and 4.2 million per annum during 2031-41, the cutting edge of the growth strategy will be provided by a focus on labour quality, according to the bulletin.

While labour quality has grown slowly in the past years, i.e., at the rate of 0.7% per annum between 1980 and 2021, there is growing evidence that the growth rate of aggregate labour quality has improved since 2017-18. The services sector has been driving the improvement, although labour quality in the manufacturing sector has maintained growth after moderating from a spike in 2019-20, it said.

In both sectors, it has been supported by increases in wage earnings (viewed as returns on education) in almost every educational category, but especially among those with secondary education and above, according to the bulletin.

Global capability centres are increasingly looking to tap into revenue opportunities embedded in India's talent pool and are focused on converting this advantage into delivering exceptional value in the form of innovations, high quality services and solutions and data-driven business models on a worldwide scale, the bulletin said.