The US-China trade war, deglobalization and pandemic disruption are resulting in supply chain shifts, and emerging as a beneficiary in all this is India, says a UBS report released on Thursday.
As per the report, while it is difficult for any one nation to replicate China’s success in manufacturing, India can be the one gaining most advantage from supply chain shifts and reforms, which could also result in job creation.
“Growth could rise to 6.25-6.75% YoY by 2030 under an optimistic scenario and 6.75-7.25% YoY under a blue-sky scenario, leading to job creation,” Tanvee Gupta Jain, chief India economist, UBS, said.
Competing alongside India as a key contender is Vietnam, the report said adding that as both the nations offer low-cost manufacturing, scale and infrastructure many supply chain are looking towards them.
For the near term, the UBS economist noted that a broad-based recovery is yet to occur.
“Despite reasonable headline growth, underlying economic recovery post-pandemic remains uneven when looked at in terms of rural-urban divide; manufacturing vs. services growth; and/or affluent vs. lower-income household demand,” Jain said.
UBS has forecast that growth could slow to 6.1%, compared with 7.2% in the previous year. It pointed out that a favourable base effect will help growth reach 7.5-8% in Q1, after which the momentum will fall, with growth averaging 5-6% for the rest of the year.
“Capex growth has largely held up on higher government capex and demand for residential real estate holding up. However, the pick-up in private corporate capex remains gradual,” the report said.
The RBI has set a growth target of 6.5% for FY24 and inflation of 5.4%.
UBS estimated inflation to average 5.4% for the year but noted that elevated vegetable prices would keep inflation above 7% in August.