"India to Remain the Fastest Growing Economy Despite the GDP Growth Cut From 7.8% to 7.3% in the Next Fiscal"
-Dharmakirti Joshi,Chief Economist, CRISIL
"Pushing up growth potential, making it equitable, and generating employment needs consistent policy support and relentless reforms"

Intro: This week on the Socio Economic Voices, we have Dharmakirti Joshi, Chief Economist, CRISIL sharing deep insights about the future of the Indian economy amid the ongoing global meltdown and what should be the focus over the next decade. Speaking to Senior Journalist Mahima Sharma, Mr Joshi asserts that the prospects for the next decade hinge on the revival of investments and success of reforms. And also that, employment generation has to be a key focus area for India as it has a predominantly young population. For a better foothold, India should focus on manufacturing, specifically its labour-intensive segments such as textiles, gems and jewellery, food processing, and leather and leather products. This and more, in an exclusive interaction below.

MS: What’s your take on the Indian economy – its present and future in the next 10 years – amid threats, challenges and strengths of its economic policies and strategies?

Economist DK: The pandemic hit the Indian economy hard, resulting in gross domestic product (GDP) contracting by 6.6% in fiscal 2021. The magnitude of that can be gauged from the fact that GDP in fiscal 2022 was only 1.8% higher than the pre-pandemic level (fiscal 2020).

Though the economy is gradually picking up, the recovery has been uneven. Smaller firms were harder hit than larger ones. Services suffered the most, especially contact-based, which continue to trail fiscal 2020 levels by 11%. The government had to do the heavy lifting in providing stimulus to consumption and investment. And the Reserve Bank of India (RBI) extended its support by cutting interest rates and extending forbearance for loan repayments.

Even before the pandemic could subside, the Russia-Ukraine conflict has created its own set of risks – dislocating the crude and commodity markets and supply chains. This has lowered growth expectations for fiscal 2023 and raised inflation above the RBI’s tolerance levels of 6%.

Prospects for the next decade hinge on the revival of investments and success of reforms. We believe India can grow at 6.5-7% per year over the next decade. Some of the reforms such as Goods and Services Tax and Bankruptcy Code, are beginning to pay off. Focus on infrastructure (National Infrastructure Pipeline), the production linked incentive (PLI) scheme and improved ability of the large and mid-sized private sector to undertake investments will support growth.

Implementation of the PLI scheme will lead to a potential capital expenditure of Rs 2.5-3 lakh crore over the scheme period and will account for 13-15% of average annual investment spending in key industrial sectors over the next 3-4 years, as per CRISIL estimates. Faster digitisation is providing citizens greater access to opportunities, cutting leakages via targeted delivery of services, and also providing a platform for innovation.

Pushing up growth potential and making it equitable, and generating employment will require consistent policy support and relentless reforms, particularly aimed at improving the ease of doing business.

MS: The RBI has signalled shifting focus from reviving growth to mitigating inflation risks. Why is inflation such a big concern in India? How do you see monetary and fiscal policies address inflation and what are the implications/side effects of such policy moves?

Economist DK: A 40-basis-point (bps) surprise interest rate hike by the RBI on May 4, 2022, marked a decisive turn in the monetary policy towards inflation control. That the RBI’s move came hours ahead of the US Fed’s announcement of its monetary policy, also shows rising concerns on external spillover risks of sharp interest rate increases by the Fed. Such moves typically trigger capital outflows from emerging markets like India and cause currency volatility.

That said Mahima, inflation control was the primary reason for initiating rate hikes, and rightly so.

Over the past few months, inflation has gotten higher, persistent and broad-based than thought earlier. Unlike fiscal 2021 when food was the major driver and fiscal 2022 when fuel and core were driving it, in the current fiscal, all three are driving inflation higher. In April, the Wholesale Price Index (WPI) inflation and retail price inflation printed 15.1% and 7.8%, respectively.

Food inflation is being driven by rising production and transport costs, surging international crop prices, and extreme weather-related disruptions.

The Russia-Ukraine conflict has kept crude oil prices on the boil and fuel inflation is likely to remain high this year. Sharp increases in the WPI inflation have increased the input costs for producers, which are getting partially passed on as higher retail prices to the consumers.

Economic policy has adopted a three-pronged approach to bring inflation down. First, monetary policy is being tightened. We expect the RBI to raise interest rates by up to 100 bps more this year. Second, the government is cutting excise and import duties to bring down the input cost pressures. Finally, subsidies are being provided to cushion vulnerable segments from rising inflation. All these measures have costs. Rising interest rates slow the economy, and high subsidy bills and duty cuts bloat the fiscal deficit, forcing the government to borrow more.

MS: Amid the global economic slowdown, central banks across the world are raising interest rates to fight inflation. What are its implications for Indian financial markets and currency volatility?

Economist DK: Major systemically important central banks, including the US Fed and European Central Bank, have been surprised by the sudden surge in inflation, and have accordingly tilted towards rate hikes. The US Fed has already raised interest rates by 75 bps and is going to continue raising interest rates through the year. Such moves increase the spillover risks to financial markets and capital flows, particularly to emerging markets like India.

This brings back memories of the 2013 taper tantrum. A mere announcement by the US Fed that it would be reducing liquidity in the system, was enough to roil emerging markets. India too saw sharp capital outflows and rupee depreciation back then.

How the actions of systemically important central bank actions impact us depends on how vulnerable we are. In 2013, India was highly vulnerable – it had a high current account deficit and was a part of ‘fragile 5’ economies. So even a mild shock from the Fed was enough to trigger capital outflows and currency weakness.

Today, India is comparatively less vulnerable. Current account deficit as a percentage of GDP is lower and forex reserves are much higher. That makes us somewhat resilient in comparison, but not immune to what the US Fed is doing. Plus, the shock from the Fed’s actions is much bigger this time.

Thus so far, the forex shield has helped the RBI to manage orderly depreciation of the currency. Currency volatility can rise going ahead due to Fed interest rate hikes and emerging geopolitical situations. The RBI will have to remain extremely vigilant on this front, in addition to inflation management.

MS: One of your recent statements said that we need to be worried about the less attention being given to the employment generation in India. What kind of vision, measures and implementations need to be taken to revive the job sector in totality? And what are the follies from the past that need to be done away with?

Economist DK: Employment generation has to be a key focus area for India as it has a predominantly young population. About 930 million people, or 67% of India’s population, currently belong to the working age group of 15-64 years.

This group is set to expand by 100 million over the next decade, despite a declining trend in birth rates. Meaning, a whopping 22.5% of the incremental global workforce over the next decade will come from India.

India should focus on manufacturing, specifically its labour-intensive segments such as textiles, gems and jewellery, food processing, and leather and leather products. Bangladesh and Vietnam are prime examples of economies that took advantage of their low-cost structure and developed their textiles sector.

The pandemic has caused some major shifts. The fast forwarding of technology, when the country lacks skilled manpower, is creating wage pressures. At the same time, the hit to smaller enterprises, which are highly labour intensive, is creating an unemployable/underemployed army of people.

Thus, India needs to not only create more jobs in manufacturing, it must also skill the labour force to meet the changing market needs and provide continued fiscal support to MSMEs to recover from the crisis.

Within non-agriculture, construction is the most labour-intensive sector. A dominant part of the labour force in construction continues to be unskilled or semi-skilled. A fast-growing construction sector would help create employment opportunities for the less-skilled surplus labour in agriculture.

Finally, coming to services. Focusing on relatively labour-intensive services such as healthcare, education and hospitality can greatly augment job creation. Public investments in healthcare and education will not only create jobs, but also raise India’s growth potential by making the workforce skilled, educated and healthy.

It is equally important to focus on the gender dimension to realise the demographic dividend. Periodic labour force surveys show that participation of women in the labour force in India continues to fall. This will have to be reversed by introducing women-friendly employment policies and investing in the health and education of women, to achieve greater economic success.

MS: In March 2022, CRISIL retained the growth forecast for FY23 at 7.8% despite the Russia Ukraine war. Your take on this: If it is still achievable, then how and without affecting the masses?

Economist DK: We have recently cut our GDP growth forecast for fiscal 2023 to 7.3% from 7.8%. Even with this cut, India will remain the fastest growing large economy.

Mahima, it is true that there are headwinds to growth from the slowing global economy, rising crude/commodity prices and higher interest rates.

For instance, higher crude/commodity prices destroy purchasing power of households and companies (squeeze margins). Our analysis of 800 large and mid-sized companies across 43 sectors indicates earnings before interest, tax, depreciation and amortisation (Ebitda) margin may drop 150-200 bps in fiscal 2023 to 18%.

High inflation cuts the discretionary spending ability of lower income groups as they spend more on food and energy, the main inflation triggers currently.

Peak impact of interest rates will, however, be felt only towards the end of this fiscal year. I see support for growth from a strong bounce back in contact-based services, which in fiscal 2022 was about 11% lower than fiscal 2020 levels. High-frequency data for April and May show robust economic performance. We also expect some decline in crude and commodity prices towards the second half of this fiscal due to slowing global growth.

On balance, we do see 7.3% GDP growth to be achievable in this fiscal. The balance of risks is, however, tilted downwards.

MS: Climate-change-triggered monsoon deficit or excess in various regions of India has become a norm in the last few years. What more do you foresee for India, (including the food crisis warned by climate experts) in the coming 10 years amid its renewable energy mission slowing down due to global economic issues? A speedy implementation of which all measures can ensure we scuttle off this staring crisis.

Economist DK: Climate is emerging as a big issue globally with increased frequency of extreme weather events. Monsoon failure has become more frequent over the past few decades in India, leading to recurring droughts and floods – both of which hurt agriculture. Add to that the recent heatwave this year, which was very intense. It has reduced wheat production by almost 8-10% for the rabi season. The heatwave has also impacted tomato and mango crops, driving up their prices.

According to S&P Global, India is likely to have over 52% of its GDP exposed to physical risks like wildfire, flood, rise in sea level, or storm by 2050.

I believe that the recent global crisis will at best somewhat delay the substitution of conventional energy by renewable energy. But make no mistake, addressing climate change issues/de-carbonisation is vital for all countries, including India.

India is in a high growth phase and is dependent on conventional energy sources to fuel its growth. It will take time to replace these by renewable sources. After the Covid-led disruptions and Russia-Ukraine conflict, the cost of investments in renewable energy has gone up and complicated the transition.

In the coming years, India needs to speed up domestic production and scalability of renewable energy adoption. It also needs to fast track investments in cutting edge technologies like hydrogen and work towards making them affordable.

MS: Except for the government services, there is no financial security plan for the masses towards old age. What kind of steps need to be taken both from the government side as well as citizens towards strengthening of self-dependence steps towards a financially secure old age?

Economist DK: It is true that India is a predominantly young country with 50% of the population below 25 years. Currently, there are over 149 million people aged 60 in India, and the number is projected to more than double by 2050. This implies that, roughly, every fifth Indian will be a sexagenarian compared with one in 10 now. And most of them will be financially insecure in their sunset years if a social security net doesn’t get built starting now.

Pension penetration in India is estimated to be very low at under 30% of the population above retirement age, compared with over 70% for other Asian peers like Japan, China and Republic of Korea. A major reason for this is that the bulk of the population is engaged in the unorganised sector, which lacks the wherewithal to ensure a decent enough vesting corpus (Securing Life’s Second Innings, CRISIL, 2019).

In a business-as-usual scenario, the government will have to bear the heavy fiscal burden of providing minimum sustenance to them. There are some positive developments though.

Formalisation of the economy, which is gaining pace, is a welcome development and will help bring some part of the population under the social security net. Plus, proposing a co-contribution approach for all subscribers through the Pradhan Mantri Shram Yogi Maandhan Yojana and Atal Pension Yojana, is a promising step towards addressing some of the social security issues for the elderly. Affordable social security schemes will need to be promoted on a war footing via monetary incentives to effectively extend social security to the ageing.

MS: External trade has done very well during the pandemic and India exceeded its target of $400 billion exports in fiscal 2022. Do you see this trend as sustainable? What are the challenges ahead and what policy measures need to be taken to make high export growth sustainable?

Economist DK: India’s stellar trade performance in fiscal 2022 largely reflects high responsiveness of India’s exports to global growth. Whenever global growth goes up, our exports also benefit. But in the past, we have seen that such booms typically do not last long and fade with a slowdown in global growth.

A similar situation is staring at us in the current fiscal and the key question is whether strong export growth will continue in the face of slowing global growth in 2022? See Mahima, to make India’s exports resilient, many creases need to be ironed out.

Lower comparative advantage of India’s exports is often attributed to higher trade costs (tariff and non-tariff barriers), infrastructure bottlenecks, and land and labour laws. The World Bank, in its Global Economic Prospects (June 2021), showed how trade costs can double the price of a good traded externally over a similar domestic good, particularly in emerging economies, thereby hindering competitiveness.

Lowering these through reduction in compliance costs at border processes and improving domestic infrastructure, especially in shipping and logistics, could help boost trade flows. India’s progress on the ease of doing business rankings, particularly in reducing time and costs of trading across borders, is one step forward in this regard.

The pandemic has accelerated the process of diversification of suppliers and production destinations, especially away from China. This again offers a chance for India to integrate itself further into global value chains. Improving competitiveness of exports through a focus on domestic infrastructure building and reduction in trade costs, would go a long way in improving its chances of being noticed, globally. India needs to do more than just being able to ride on the turning tide.

MS: What kind of live classroom training are required for the youth of today, to help them understand modern economics and apply it in real life?

Economist DK: Students should get exposure to practitioners/economists from the government, regulatory bodies and private sector. As a part of the curriculum, they should be made to intern with the corporate sector and government bodies, to help them understand the concepts and how to apply them to the real world. Watching economists analyse data, make forecasts, advice and make presentations will not only enrich the learning experience of students, but will help them build professional connections too.

About Dharmakirti Joshi

At CRISIL, Mr Dharmakirti Joshi leads the economic research agenda and is the primary spokesperson for CRISIL on macroeconomic issues. He has extensive experience in macroeconomic analysis and medium-term assessments of the Indian economy. He was a member of the Working Group of Savings for the 12th Five Year Plan. He is currently a member of the Working Group on Revision of Wholesale Price Index set up by the Government of India. He was co-chair of the Economics group at FICCI. He regularly writes for leading newspapers and expresses his views on the economy in the electronic media.

Mr. Joshi has spent 33 years in economic research and consultancy. He spent 11 years at the National Council of Applied Economic Research (NCAER) before moving on to the Central Electricity Regulatory Commission (CERC), New Delhi, and then CRISIL. At NCAER, Joshi worked on short and medium term macroeconomic forecasting using econometric models, macroeconomic reforms and fiscal policy related issues. At CERC, he worked on regulatory, competition and tariff related issues in the Indian power sector.

Mr. Joshi holds a bachelors and Masters degree in Economics and has attended the program on Macroeconomic Policy and Management at Harvard University. He was a visiting scholar to the Economic Research Unit of University of Pennsylvania.

About the Interviewer

Mahima Sharma is a Senior Journalist based in Delhi NCR. She has been in the field of TV, Print & Online Journalism since 2005 and previously an additional three years in the allied media. In her span of work she has been associated with CNN-News18, ANI - Asian News International (A collaboration with Reuters), Voice of India, Hindustan Times and various other top media brands of their times. In recent times, she has diversified her work as a Digital Media Marketing Consultant & Content Strategist as well. Since March 2022, she is also an Entrepreneurship Education Mentor at Women Will - An Entrepreneurship Program by Google in Collaboration with SHEROES. Mahima can be reached at

Disclaimer : The opinions expressed within this interview are the personal opinions of the interviewee. The facts and opinions appearing in the answers do not reflect the views of Indiastat or the interviewer. Indiastat does not hold any responsibility or liability for the same.

indiastat.comJune, 2022
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