India is placed on a comfortable perch as it enters the New Year. Its economy has recovered from the upheavals of Covid and is steaming ahead as the world’s fastest growing one. The country’s macros are in good shape, whether it is the fiscal deficit or the external account. On the international stage, India has been an influencer in G-20 and climate forums; its non-partisan stance in the Ukraine and Israel wars will serve it well in an increasingly fractious world. The likely return of the Modi government for a third term in 2024 will spur investor confidence.

This is because the government is visibly keen to usher investment in industry, logistics and infrastructure. India is serious about becoming a ‘China plus one’ supplier of products and services. With a large domestic market, a technically skilled workforce and a record of competence in managing the economy, India is well positioned to attract more foreign direct investment than it has done in 2023. The likely easing of rates in the US and EU by the middle of 2024 may ease liquidity and spur investment flows into emerging economies. The performance-linked incentive schemes across 14 sectors could alter the investment landscape, even if their impact has been underwhelming so far. Ease of procedures in clearing investments (except for flows from China) will add to a climate of confidence. A smartphone, electronics and semi-conductor ecosystem is taking shape, creating skilled jobs with spin-offs.

The growing role of capex in the Centre’s budgets, with the States too following suit thanks to fiscal incentives, marks a structural break. Since asset creation is less inflationary than revenue-led spending, it also leaves the government with some fiscal wedge room. India’s inflation is likely to wind down by the second half of the next fiscal, unless there are unforeseen shocks. However, the Reserve Bank of India would be justified in keeping liquidity on a leash in an election year. An expenditure thrust on welfare schemes , alongside a capex push, seems to be the budgetary recipe for the times – with direct benefit transfers also acting as a means to rationalise subsidies. That said, the political compulsion to announce ‘freebies’ could upset this balance.

There are, however, headwinds — global and domestic — that cannot be ignored. Protectionism is on the rise in a de-globalised, post-Covid world. An informed policy response to AI cannot be put off any longer. Back home, rising work participation rates cannot detract from the skills deficit, which impacts the quality of jobs being created. This gap manifests itself in unpleasant ways, such as the Maratha agitation. It should be addressed through policies, eschewing political cynicism. The rural-urban demand gap, acknowledged by the RBI, cannot be addressed through free grains alone. The government’s focus on one-district-one-product as well as artisanal skills could do with more attention — so that 2024 shapes a more inclusive and productive economy.