A promising outlook for 2024 awaits the surging Indian economy
ADB has projected 6.7% growth, while IMF and World Bank have put it at 6.3%
The UN World Economic Situation and Prospects (WESP) said that the GDP in South Asia grew by an estimated 5.3% in 2023 and projected an increase by 5.2%, driven by robust expansion in India. The growth in India is projected to reach 6.2% in 2024, slightly lower than the 6.3% estimate for 2023, amid robust domestic demand and strong growth in manufacturing and services sectors
It is a welcome news that India has performed better than most developed and developing countries in terms of GDP growth for the half year ended FY 2024 with 7.7 % as against 5.6% China, 5.1% Indonesia, 3.4% Mexico, the USA 2.7%, Japan 1.5%, France 0.9% , the UK 0.6% and Germany negative 0.2%. This shows that India was the fastest growing major economy in H1 FY 2024 (Source: MoSPI, Bloomberg).
The Union Ministry of Finance Dept of Economic Affairs released their half-yearly Economic Review 2023-24 (Nov. 2023) on December 29. Its outlook states that "the better than expected growth in Q2 of Fy24 and the emergence of India as the fastest growing major economy in H1 of FY 2024 have improved the growth prospects and prompted various domestic and international agencies to upgrade GDP growth projections for FY2024."
It may be recalled that RBI had recently enhanced its GDP growth projection at 7%.
According to the first Advance Estimates of National Income 2023-24, the economy is to grow at a robust 7.3% in FY 2023-24 as against 7.2% in the previous financial year. However, the nominal GDP growth is estimated at 8.9% as compared to 16.1% in 2022-23. The report states that these are likely undergo revisions following improved data coverage, actual tax collection and expenditure incurred on subsidies, among others.
It is worth noting that agriculture, livestock, forestry and fishing may show much lesser growth of 1.8% as against last year's 4%, while the manufacturing sector may have 6.5% growth against the meagre 1.3% last year. Mining and construction sector is likely to grow by 8.1% and 10.7% this financial year as against last year's 4.6% and 10%, respectively. According to the estimates, all the economic sectors have fared well with over 6% except agriculture, which suffered due to deficit rainfall and less sowing.
In the backdrop of the half-year growth of 7.7%, various agencies have forecast higher growth for the full year with ADB projecting 6.7%, while IMF, World Bank and OECD have all put it at 6.3%.
The UN World Economic Situation and Prospects (WESP), which was released on January 4, said that the GDP in South Asia grew by an estimated 5.3% in 2023 and projected an increase by 5.2%, driven by robust expansion in India. According to the report, the growth in India is projected to reach 6.2% in 2024, slightly lower than the 6.3% estimate for 2023, amid robust domestic demand and strong growth in manufacturing and services sectors. The
global growth is projected to slow from an estimated 2.7% in 2023 to 2.4% in 2024. The same is expected to moderately improve to 2.7% in 2025 but will remain below the pre-pandemic trend level of 3%. Report also talks about international trade is losing steam as a driver of growth as in 2023 global trade growth weakened significantly to an estimated 0.6%, a sharp decline from 5.7% in 2022.
The UN report talks of underlying risks such as prolonged period of higher borrowing costs and tighter credit conditions present strong headwinds for a world economy that is saddled with high levels of debt but also in need of increased investment, not only to resuscitate growth but also to fight climate change and accelerate progress towards the Sustainable Development Goals (SDGs) Moreover, tight financial conditions, coupled with a growing risk of geopolitical fragmentation pose increasing risks to global trade and industrial production.
These aspects are also of importance to India as the same may have some impact on our growth going forward.
Even though S&P Services PMI for India reached 59 in December against 56.9 in November on strong demand, manufacturing PMI dropped to an 18-month low of 54.9. It is pertinent to note that global investments are falling and we may have lesser FDI in view of low global growth. In FY 2023, India received equity inflows worth $ 46.03 billion. The total FDI inflows received in FY 2023, which includes equity inflows, reinvested earnings, and other capital sources, amounted to $ 70.97 billion - a decrease from the $ 84.83 billion recorded during FY 2022.
The surge in repatriation has lowered net FDI inflows even though FPI inflows have become brisker. However, India’s merchandise exports touched an impressive $ 278.89 billion up to November in the current financial year as against $ 298.21 billion for the corresponding period last year. As international commodities prices have down, including oil procurement, India has been able to moderate imports while service exports moved up and their imports has moderated. This has resulted in moderating the trade deficit substantially.
India has been able to garnish adequate forex reserves after the dip during Covid-19. As on December 22, the forex reserves rose to $623 billion, which is a 22-month high. This will be a strong position as far as meeting the requirements of imports and any future volatility is concerned. India has also narrowed its current account deficit and stood at $30.9 billion in the second quarter of 2022-23.
While these are strong macro-economic fundamentals, there is a need to ensure that private investment picks up further and the Central and state government, which has been managing fiscal deficit better, brings it to the desired and targetted level as per the schedule and keeps buffer for any unforeseen contingency. India has to further step up investment towards alternative renewable energy projects and other mitigation plans to be in line with net zero emissions 2070 target and reduce the burden of climate change by adaptation plans. The benefits of better GDP growth should result in more employment, better per capita income and better standard of living, which the Centre has been endeavouring with innovative schemes for the lower income group.
The next 25 years should take India to the developed country status and every Indian should strive for the same to be materialised with individual higher contributions.
(The author is former Chairman & Managing Director of Indian Overseas Bank)
