From our chief economist

A push and a turn for India

India’s latest current-account data showed a narrowing deficit, and illustrated two of the trends that will help the economy in the year ahead. The goods trade deficit, which had been ballooning, turned smaller as commodity prices fell from their peaks: a trend we believe has further to run. Alongside this, the services trade surplus pushed higher, as a post-covid boom in outsourcing and distributed workforces dovetails with India’s strengths in IT, finance and business processes.?

It is natural for India to have a current-account deficit; as a country with a lot of growth ahead, it should be importing capital. The key question is whether that capital is being deployed in productive areas and if policy reforms are being made to maximise its profitable use. As our recent white paper on manufacturing in India discussed, there is solid—even if not exceptional—progress being made, and India’s business environment will continue to catch up to China’s in the next five years. In some areas, it will even overtake it. India won’t get as much FDI as South-east Asia, despite its much larger population, but a good decade looks to lie ahead.

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