The recent upward revision or stable figures in the economic growth forecasts by international financial institutions can be seen as a sign of hope for the Indian economy. The Union Budget had some positive announcements on the foreign investment front. The existing regulations and policies are likely to get the desired fillip from both these developments. We can only wait and watch as how this unfolds in the coming months.
Asian Development Bank – The Asian Development Bank (ADB) recently released its Asian Development Outlook (ADO) July 2024 report. As per this report, the Indian economy is on track to grow by 7.0% in FY2024 (ending 31 March 2025) and 7.2% in FY2025, as projected in ADO April 2024 (as reported by Asia Law Portal). Services continued to expand robustly in Q4 of FY2023, and the forward-looking services PMI is well above its long-term average. Industry is also expected to grow robustly, driven by manufacturing and strong demand for construction led by housing. After muted growth in FY2023, a rebound in agriculture is expected given the above-normal monsoon projections. This is notwithstanding the slower advance of the monsoon in June. A rebound in agriculture will be important to sustain growth momentum in rural areas. Investment demand continues to be strong, led by public investments. Bank credit is fueling robust housing demand and improving private investment demand. However, export growth will continue to be led by services, with merchandise exports showing relatively weaker growth. The stronger-than-expected fiscal position of the central government could provide a further boost to growth. However, this must be weighed against downside risks arising from weather events and geopolitical shocks.
International Monetary Fund – The International Monetary Fund (IMF) recently released its World Economic Outlook (WEO) July 2024 update. The report titled ‘The Global Economy in a Sticky Spot’ mentioned that growth in India has been revised upward, to 7.0 percent, this year, with the change reflecting carryover from upward revisions to growth in 2023 and improved prospects for private consumption, particularly in rural areas. This is an increase of 0.2 percentage point upward revision compared with the April 2024 WEO projection (as reported by Asia Law Portal). The growth projection for 2025 remains unchanged at 6.5%. In the Press Briefing at the launch of the WEO July Update, Mr. Daniel Leigh, Division Chief, Research Department, mentioned that ‘India is a country with growth — very strong and continuing to be strong. It’s about — 1/6 of total global growth is accounted for by India right this year, and inflation is back inside the target range in our estimates.’ The WEO report mentioned that Global growth is projected to be in line with the April 2024 World Economic Outlook (WEO) forecast, at 3.2 percent in 2024 and 3.3 percent in 2025. Services inflation is holding up progress on disinflation, which is complicating monetary policy normalization. Upside risks to inflation have thus increased, raising the prospect of higher for even longer interest rates, in the context of escalating trade tensions and increased policy uncertainty. The policy mix should thus be sequenced carefully to achieve price stability and replenish diminished buffers.
Moody’s Ratings – Moody’s Rating kept India’s economic growth forecast for calendar year 2024 unchanged at 6.8%, while predicting a 6.5% growth for 2025. Moody’s Rating said increasing domestic and overseas demand supports GDP growth in emerging markets (EM), with wide variation by country. “We have revised our aggregate EM forecast to 3.9% for 2024 and 2025, up slightly from our previous forecast, to reflect faster-than-expected growth in some of the largest EM economies in the first half of this year,” it added. In its Global Macro Outlook 2024-25 published in March (reported by Asia Law Portal), Moody’s raised its forecast for India’s GDP growth in 2024 from 6.1% to 6.8%, reflecting both global and domestic optimism in the country’s economy on the back of robust manufacturing activity and infrastructure spending. The forecast for 2025 was 6.4% at that time. “India is likely to remain the fastest-growing among G-20 economies over our forecast horizon,” it said.
Union Budget – The Union Finance Minister announced several measures relating to foreign investment in the Union Budget.
- The rules and regulations for Foreign Direct Investment and Overseas Investments will be simplified to (1) facilitate foreign direct investments, (2) nudge prioritization, and (3) promote opportunities for using Indian Rupee as a currency for overseas investments.
- To bolster the Indian start-up eco-system, boost the entrepreneurial spirit and support innovation, it was proposed to abolish the so called angel tax for all classes of investors.
- There is tremendous potential for cruise tourism in India. To give a fillip to this employment generating industry, it was proposed to have a simpler tax regime for foreign shipping companies operating domestic cruises in the country.
- India is a world leader in the diamond cutting and polishing industry, which employs a large number of skilled workers. To further promote the development of this sector, it was proposed to provide for safe harbour rates for foreign mining companies selling raw diamonds in the country.
- To attract foreign capital for our development needs, it was proposed to reduce the corporate tax rate on foreign companies from 40 to 35 per cent.
- Indian professionals working in multinationals get ESOPs and invest in social security schemes and other movable assets abroad. Non-reporting of such small foreign assets has penal consequences under the Black Money Act. Such non-reporting of movable assets up to ₹ 20 lakh is proposed to be de-penalised.
