As India gears up for Budget 2024, the economic landscape presents a fascinating mix of challenges and opportunities. The year 2023 witnessed India’s remarkable resilience in a volatile global economy, marked by robust credit growth and a 21 per cent surge in direct tax collections, emphasising its status as the world’s 5th largest economy.

The Indian equity market saw a notable rally in 2023, with the Nifty50 and BSE Sensex delivering approximately 20 per cent returns. India’s stock market has hit a new milestone, with its valuation now exceeding $4 trillion, elevating its global rank to the fourth position.

After a turbulent season for bonds in 2023, India’s bond yields are expected to dip lower amid potential rate cuts in 2024. Anticipated changes in the US Federal Reserve’s policies and more steps by the Indian government to achieve fiscal consolidation are also projected to result in a decrease in Indian bond rates.

In 2023, the global economy continued to be vulnerable, mostly owing to elevated interest rates, disrupted supply chains, and emerging geopolitical issues. The US economy exhibited persistent fragility in 2023, intensifying concerns about the possibility of “higher for longer” interest rates. China’s recovery remained lacklustre despite easing Covid regulations, as business and consumer moods declined.

The real estate crisis in China has also had its impact. Inflation saw a gradual decrease worldwide following a significant surge in 2022 as a result of an exceptionally stringent global interest rate policy. The economies of European countries such as the UK and Germany saw a significant deceleration as a result of persistently elevated energy expenses. The outcomes of elections in significant nations and regions, including India, the US, the UK, the European Union, and others, will determine the policies that might impact the trajectory of global growth in the medium term.

India’s economic story is one of resilience and growth amidst global challenges. The economy experienced significant milestones, with high GDP growth rates of 7.8 per cent and 7.6 per cent in Q1 and Q2 of FY24 and record GST collections averaging ₹1.6-lakh crore, and peaking at ₹1.87-lakh crore in April 2023.

Additionally, the rupee remained resilient in CY2023, trending between 81.1 and 83.4, supported by proactive measures from the RBI and robust foreign inflows.

However, challenges persist, particularly in the agricultural sector, which is projected to grow only by 1.8 per cent in FY24, and the manufacturing sector, which is expected to grow by 6.5 per cent (NSO estimates). Inflation remains a global concern, but there’s an expectation of a shift towards growth impetus by central banks globally in 2024, a crucial factor for India’s economic policy.

Election impact

The general election results in the summer of 2024 are predicted to cause a change in the factors that drive economic growth. Historical evidence indicates that a government that is stable and has a defined mandate has a tendency to enhance investor confidence and generate favourable market results.

Market volatility might result from a fragmented electoral outcome. Following the election, there is an expectation that government spending will decrease while private investment will increase. Indian enterprises are adequately equipped for this transition, considering their well-funded bank balance sheets and reduced industrial debt.

Indian enterprises also want to capitalise on the ‘China-plus-one’ approach embraced globally. Despite global difficulties, the Indian economy is still robust thanks to factors like internal demand, infrastructure investment, and a strong financial sector. Nevertheless, there are associated hazards, such as increased inflation and tight monetary policies.

As India prepares for the 2024 Budget, it must navigate these complexities with a balanced approach, focusing on inclusive growth and sustainable development. The Budget needs to address the rural-urban divide, boost the manufacturing sector, and continue supporting the burgeoning service sector, all while maintaining fiscal discipline.

The Budget will play a crucial role in sustaining this momentum and addressing underlying challenges to ensure a prosperous future. Investors should embrace a strategic and extended outlook while seeking stocks with solid underlying fundamentals. Adhering to sensible portfolio diversification measures may help in navigating probable market changes in the upcoming year.

The writer is Professor of Finance, IMT Ghaziabad

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