India will ring in 2024 with lot of optimism on the economic front, despite the current year turning out to be a sort of a mixed bag amid the global headwinds of the Russia – Ukraine conflict and Israel – Hamas war in West Asia. The recent intermittent surge in the Covid 19 pandemic has also raised uncertainty in the global economic landscape even as India is expected to remain a shining star  in a slowing global economy in the year 2024.  

Of course it has to set its domestic house in order to catapult itself to higher 8-9 percent growth trajectory.  

While the country continues to enjoy strong macroeconomic dynamics, it is faced with daunting challenges on food inflation (largely due to weather-driven volatility), employment generation front, and how upcoming general elections in 2024 may finally play out in fashioning future economic policies. 

Thumbs up from FPIs

However Foreign portfolio investors (FPIs) and the equity markets are shrugging off these challenges, already pricing in policy continuity at the Central level for the next five years and have given a thumbs up to the economy making even rapid strides in 2024.  

India’s stock markets now enjoy market capitalisation of over $4 trillion (GDP is at $3.4 trillion) with the benchmark Nifty50 this year giving a return of 17 per cent, higher than that of 13 per cent for gold (an item of huge consumption in India). 

Also given the emphasis on China +1 and India looking to emerge as a manufacturing powerhouse, don’t be surprised if annual foreign direct investments (FDI) in 2024 cross the $100 billion milestone. 

Another huge tailwind that will come India’s way next year is the expected flow of at least $25 billion into its debt markets in the wake of Sovereign bond inclusion in JP Morgan’s EM bond index. This robust level of passive flows augurs well for the Indian private sector as this will crowd in borrowings. India is likely to in 2024 get included in other global bond indices as well, opening the tap of forex-denominated flows into Indian G-secs. 

Growth prospects

Commenting on India’s growth prospects for 2024, Vishrut Rana, an economist at S&P Global Ratings said “In late November 2023, we raised our projection for India’s GDP growth for fiscal 2024 (ending in March 2024) to 6.4 per cent from 6 per cent.  

Robust domestic momentum seems to be offsetting headwinds from high food inflation and weak exports. Still, we expect growth to slow in the second half of the fiscal year amid subdued global growth, a higher base, and the lagged impact of rate hikes.  

As a result, we lowered our outlook for growth in fiscal 2025 to 6.4 per cent from 6.9 per cent” 

Whichever way you may cut the economy dice, one thing is clear—India is poised to in 2024 retain its tag as the fastest-growing large economy in the world. Several positive clouds are gathering over the Indian economy as we enter 2024 one industry honcho (head of an Indian arm of a global major) recently even gave a public lecture on how this has been India’s decade and how the positioning has moved from ‘Incredible India to Inevitable India’.  

India with its near 7 per cent GDP growth level has not only lifted the spirits of its domestic population, the country has also played a key role in supporting global growth despite a faltering Chinese economy.  

Riding on optimism

So when the recent second quarter GDP growth positively surprised everybody at 7.6 per cent, nearly half a dozen international forecasters have raised their GDP growth projection of India for the current fiscal and next fiscal too. Such is the optimism riding on India’s economic growth performance that it can’t afford any loss in momentum. As Chief Economic Advisor in the Finance Ministry V Anantha Nageswaran recently wrote in an essay that India would do well not to take off its foot from the growth pedal and that it would only sustain focus on economic growth that could yield better dividends for its poor. 

What is noteworthy is that the Indian economy has shown resilience in 2023 despite global geo political risks and ongoing Russia-Ukraine conflict and Israel-Hamas war. 

Capital formation

A lot of this resilience is owed to macro-policies pursued over the past few years including a responsible expansion of fiscal deficit as a pandemic response, calibrated monetary stimuli and subsequent withdrawal. The Centre’s move to ramp up capex during the last three years has helped the economy at a time when the private sector decided to play circumspect on their capex outlays.

The Centre’s budgeted capex has over the last three fiscal years (including 2023-24) moved up from ₹4 lakh crore to ₹7.5 lakh crore to ₹ 10 lakh crore, boosting the capital formation in the economy and giving fillip to several sectors. The second quarter GDP data showed how the construction sector has boomed and was firing on all cylinders this year. 

Despite exports slowing down in recent months, India has done reasonably well in doubling exports between 2020 and 2022, touching $770 billion amidst rising supply chain disruptions across the world. 

India’s total trade (sum of exports and imports) in GDP, has increased from around 15 per cent in the early 1990s to almost 50 per cent in 2022. Consequently, India has enhanced its stature as a trusted partner in the global trading system. 

India’s current account dynamics have turned more robust with a shift seen in monthly services trade surplus over the past few quarters. 

In recent years, there has been an acceleration in offshoring in services, leading to ramp-up in the expansion of Global Capability Centres (GCCs) in India. 

The big question

The banking system has also risen to the occasion and now credit growth in the system is at a robust 16-17 percent, fuelling consumption in the country. It has managed to keep a tight leash on the asset quality, enhancing investor confidence.  

On an overall basis, this is certainly going to be India’s decade on the economy front unless it fritters away its recent gains with either bad policies or poor execution. The foundation for Amrit Kaal has been laid, but will the super structure be strong enough is still a million-dollar question.  

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