Strong economic growth in the next 5 years is crucial for India, and policy continuity is the key to achieving it, according to Nomura.

• To become the world's fastest growing economy in the next five years, policy continuity is essential, according to Nomura's Chief Economist Rob Subbaraman.
• Between 2024 to 2028, India's economy is projected to grow at an average rate of 7%, according to the investment bank's forecast.
• During the same time, China's growth rate is projected to be higher than Nomura's forecasts for China (3.9%), Singapore (2.5%), and South Korea (1.8%).

Rob Subbaraman, Nomura's chief economist and head of global markets research Asia ex-Japan, stated that while optimism about India's growth remains high, policy continuity will be essential for the country to achieve strong growth in the next five years.

Subbaraman commended the Modi administration in Modi 2.0 for their excellent performance, stating that they have achieved two electoral victories since 2014.

The elections in India are currently taking place, and it is predicted that Modi will likely receive a substantial victory, allowing him to serve a third term as Prime Minister.

Subbaraman stated on Friday that Nomura predicts India's economy will grow by an average of 7% in the next five years, provided the current growth policies remain in effect.

Nomura's growth outlook for China, Singapore, and South Korea is lower than that projection.

According to Nomura's recent note, India is predicted to be the fastest growing Asian economy this decade as China's economy slows down.

Despite the election results, maintaining policy continuity and prioritizing macroeconomic stability are crucial for economic growth, according to the bank's analysts.

According to Nomura's projections, India's economy is predicted to grow 6.7% this year, while China's economy is expected to grow 4%. Additionally, large economies outside Asia, such as the U.S., may also experience slower growth at 2.8% this year.

"Subbaraman stated that the significant change in India is the increase in investment. As a share of GDP, investment is beginning to rise. The conditions are favorable for private capex to start growing, including FDI."

Despite Nomura's optimism on India, Sonal Varma, the firm's former chief economist for India and Asia, cautioned in a note that challenges persist and it's imperative for India to maintain a robust economy to stimulate job growth.

"While stronger foundations may increase the economy's resilience, it does not guarantee its invincibility. The current economic recovery, despite its strength, remains uneven, and there are risks from global spillovers."

Medium-term growth drivers

India aims to become a global manufacturing powerhouse, and investments in the sector are predicted to strengthen its economy.

In February, India's Union Minister for Railways, Communications, Electronics and Information Technology, Ashwini Vaishnaw, stated to CNBC that India could achieve an annual GDP growth of up to 8% for several years by concentrating on enhancing its manufacturing capabilities.

The government has allocated 11.11 trillion rupees ($133.9 billion) for capital expenditure in the interim budget for fiscal year 2025, which is a 11.1% increase from the previous year.

Despite Nomura's observation that India's share of global merchandise exports is only approximately 2%, the country will still struggle to keep pace with other Asian nations in terms of overall exports.

"In our opinion, the manufacturing industry is still in its initial stages, and its full impact will become apparent in the next 3-5 years."

The financial services sector in India, which accounts for about 7% of GDP, is increasingly contributing to the country's economic growth, according to Nomura.

"Before the pandemic, India faced a non-performing asset issue, prompting a major cleanup of banks. However, Subbaraman stated that the bank supervision and requirements have improved significantly since then."