Indian economy surpassing all expectations with its steady growth despite upheavals

The ongoing digital transformation is expected to accelerate the growth of e-commerce and thereby changing the retail consumer market landscape over the next decade. This is attracting top MNCs, which are looking to tap the Indian market. Google and Facebook are cases in point. The rapid growth of e-commerce and the shift to 4G and 5G smartphone technology will boost home-grown unicorns

The IMF in its latest update has said that India is one of the large emerging economies that has been doing better than expected. It pointed out at the emergence of crucial divergences and a more pronounced slowdown in advanced economies compared to emerging markets and developing economies. Among the advanced economies, the US has been revised up, with resilient consumption and investment, while the euro area has been revised down, as tighter monetary policy and the energy crisis took a toll.

There is divergence also among emerging markets and developing economies, with China facing growing headwinds, while Brazil, India and Russia are revised up.

After two years of rapid economic growth in 2021 and 2022, the near-term economic outlook for India is for continued rapid expansion during 2023-24, underpinned by strong growth in private consumption and investment, S&P Global Market Intelligence said in a recent update.

The acceleration of FDI inflows over the past decade reflects the favourable long-term growth outlook for the Indian economy, helped by a youthful demographic profile and rapidly rising urban household incomes. The country’s nominal GDP measured in dollar terms is forecast to rise from $3.5 trillion in 2022 to $7.3 trillion by 2030. This rapid pace of economic expansion would result in the size of the Indian GDP exceeding the Japanese GDP by 2030, making India the second largest economy in the Asia-Pacific region.

The long-term outlook for the Indian economy is supported by a number of key growth drivers. An important positive factor for India is its large and fast-growing middle class, which is helping to drive consumer spending, the growing domestic consumer market and large industrial sector.

The ongoing digital transformation is expected to accelerate the growth of e-commerce and thereby changing the retail consumer market landscape over the next decade. This is attracting top MNCs, which are looking to tap the Indian market. Google and Facebook are cases in point.

The rapid growth of e-commerce and the shift to 4G and 5G smartphone technology will boost home-grown unicorns. India is poised to one of the most important long-term growth markets for multinationals in a wide range of industries, including manufacturing industries such as autos, electronics and chemicals to services industries such as banking, insurance, asset management, health care and information technology, it added.

Brahma Chellaney, professor of strategic studies at the New Delhi-based Center for Policy Research, wrote in a recent article that as India’s geopolitical, economic and cultural clout grow, so does its global footprint. China’s “decline,” as some have begun to call the conclusion of the country’s four-decade-long economic boom, opens new opportunities for the Indian economy and other developing and emerging countries.

Earlier this year, India reached another milestone when its population officially surpassed that of China, which had been the world’s most populous country for more than 300 years.

But the driving force behind India’s emergence as a major global power is its rapid economic growth. While India’s gross domestic product is still smaller than China’s, the country is currently the world’s fastest-growing major economy and is projected to account for 12.9 per cent of global growth over the next five years, surpassing the United States’ 11.3 per cent share, the article said.

The 17th round of the FICCI-IBA survey was carried out for the period January to June 2023. A total of 24 banks including public sector, private sector and foreign banks participated in the survey. These banks together represent about 79 per cent of the banking industry, as classified by asset size.

The Indian economy posted an impressive 7.2 per cent growth in the financial year ended March 2023 and 7.8 per cent in first quarter of current fiscal year. Credit growth also continued to rise, signalling robust demand conditions in the Indian economy, as well as banks’ improved appetite towards retail borrowers.

The survey findings show that long term credit demand has seen continued growth in sectors such as Infrastructure, textiles and chemicals, food processing and metals.

Iron & steel have also witnessed accelerated long-term loan disbursements, while infrastructure is witnessing an increase in credit flow with 67 per cent of the respondents indicating an increase in long-term loans as against 57 per cent in the previous round.

Rajan Jain, Head, Credit Research, SBI Caps, said in a note that whether the yield curve dynamics mean the US is moving to a structurally higher-rate economy vs. post GFC normal remains a moot question, with important implications for investment demand and system risk.

These movements have had a cascading effect on global economies, which have seen routs in their respective bond markets, besides a fresh round of currency depreciation.

Emerging market economies with large volumes of US dollars denominated debt are especially vulnerable as they could be caught in a vicious circle of their external debt (in local currency terms) ballooning due to strong DXY and their servicing ability being impaired by tepid economic activity owing to high rates. Even advanced economies have felt the heat, and the ECB have maintained a hawkish narrative, Jain said.

Another developing story seems to be the green-shoots of recovery in China backed by domestic consumption in the Golden week, and tourism related to the Asian Games. For now, these seem to be buttressed on stimulus and base effects as China is now fully open. The long-term trajectory remains to be seen. Fickle commodity prices will also be victims of fresh geopolitical tensions in West Asia, which has pushed up Brent crude. Food prices could also play truant with climate change affecting cropping area worldwide: sugar and rice prices are booming, the note said.

In this challenging environment, Indian real GDP growth, estimated to be 6.2 per cent y/y in real terms in FY24, is resilient. High frequency indicators suggest strong construction and infrastructure activity, and soaring urban demand.

Manufacturing production has been unusually strong in Q2FY24, especially in infrastructure-oriented structures such as cement and steel. Power supply grew vastly in Q2 after a tepid Q1, helped by a dry August 2023 and buzzing industrial activity.

Both the Union and States have front ended capex in H1FY24, and this remains the engine of expansion. Capital expenditure was up 48 per cent y/y for the Union in the same period. Reports suggest capex of major states was also up 45 per cent y/y in 5MFY24.

Carrying forward this capex in H2FY24 would be important to sustain the multiplier. The fiscal deficit for the 5MFY24 stood at 36% of the FY24BE. Gross direct tax revenue experienced a substantial increase of 18 per cent y/y up to October 9, allaying concerns of fiscal slippage, the note said.