By Milounee Purohit

BENGALURU India's economy will grow at a solid pace for the rest of this fiscal year and next but well below its potential rate, according to a Reuters poll of economists who also said the employment situation will improve only slightly.

The world's most populous country aspires to leapfrog to the status of a developed nation, riding on the unprecedented demographic dividend, which demands an annual gross domestic product (GDP) growth rate of around 8% for the next 25 years.

But reaching this milestone hinges on implementing key reforms in education, infrastructure, healthcare and technology.

"If we want to realize that 8% growth potential this decade...the biggest challenge before policymakers is to reallocate the surplus labour from agriculture to more productive sectors with gainful jobs in them," said Dhiraj Nim, an economist at ANZ Research.

"If India's reform momentum is lacklustre, a less exciting picture is on the cards."

The latest Reuters poll of 53 economists taken between July 13 and 21 showed the Indian economy would grow 6.1% this fiscal year, a respectable rate when other major economies are expected to slow, maintaining a conducive environment for job creation.

Still, that was lower than the Reserve Bank of India's 6.5% and the World Bank's projection of 6.3% growth for this fiscal year. Forecasts in the poll ranged from 3.7% to 6.8%.

It was forecast to grow 6.5% next fiscal year, with expectations of 6.2% growth this quarter, followed by 6.0% and 5.5%. The outlook was largely unchanged from a June poll.

"I think 6.0% to 6.5% is a very achievable and a very conservative forecast for India's growth trajectory," Nim added.

World Bank President Ajay Banga recently said the key to India's growth story is through more jobs as he outlined the opportunity to cash in on the "China Plus One" strategy, a scheme adopted by many companies to build manufacturing units outside of the People's Republic.

DEMAND VS SUPPLY

Asked how the employment situation will change over the coming year, 17 of 25 economists said it will improve slightly.

"The unemployment situation hasn't improved yet...and the skilling to some extent is also missing. So, there is a gap in terms of the demand versus the supply," said Radhika Piplani, chief economist at DAM Capital Advisors.

Asked what impact the Production-Linked Incentive (PLI) scheme, designed to attract foreign manufacturers to set up factories in India, would have on the country's GDP this fiscal year, 21 of 27 economists said it will only increase it modestly.

The remaining six said the PLI scheme, which allocated billions of rupees as incentives from the Union budget in 2023-24, will have no impact.

"All the sectors where PLI has started are seen booming, but the actual impact of it to on-the-ground employment - that is still something which is yet to be seen," Piplani added.

While India has a lot more ground to cover to replace China as the world's manufacturing hub, some economists acknowledged the PLI scheme was a step in the right direction.

More economic reforms could bolster the scheme's prospects and create millions of jobs, they added.

"Manufacturing needs to see strong growth and that is possible only when we ... iron out the issues that are preventing fresh investments in the sector," said Suman Chowdhury, chief economist at Acuite Ratings and Research.

(Reporting by Milounee Purohit; Polling by Susobhan Sarkar and Veronica Khongwir; Editing by Hari Kishan and David Holmes)