India is witnessing its 5-year exercise to decide on its future as general elections are progressing through the length and breadth of this vast country. The economic growth prospects seem to have improved significantly as global financial institutions cite robust economic growth for India.
Asian Development Bank – The Asian Development Bank (ADB) recently released its Asian Development Outlook (ADO) April 2024 report. As per the report, the Indian economy grew robustly in fiscal 2023 with strong momentum in manufacturing and services. It will continue to grow rapidly over the forecast horizon. Growth will be driven primarily by robust investment demand and improving consumption demand. Inflation will continue its downward trend in tandem with global trends. To boost exports in the medium term, India needs greater integration into global value chains. Growth increased to 7.6% in fiscal year 2023 (FY2023, ended 31 March 2024), driven by manufacturing, construction, and services. Agriculture growth dropped sharply due to the impact of erratic rainfall. This was compensated by an increase in manufacturing growth to 8.5%. Construction also grew rapidly by 10.7% due to strong housing demand. Services, which account for 50% of GDP, grew by 7.5%, led by financial, real estate, and professional services. Net indirect taxes also got a boost in FY2023 due to declining central government subsidy expenditure following high fertilizer subsidies in FY2022. Growth will be robust despite moderating in FY2024 and FY2025. It will be driven by public and private sector investment demand and by gradual improvement in consumer demand as the rural economy improves. Exports are likely to be relatively muted in FY2024 as growth in major advanced economies slows down but will improve in FY2025. Monetary policy is expected to remain supportive of growth as inflation abates, while fiscal policy aims for consolidation but retains support for capital investment. On balance, growth is forecast to slow to 7.0% in FY2024 (which is slightly higher that 6.7% forecast in ADO September 2023 as well as ADO December 2023, as reported by Asia Law Portal here and here respectively) but improve to 7.2% in FY2025.
World Bank – The World Bank recently released its South Asia Development Update April 2024. As per the report, South Asia is expected to remain the world’s fastest-growing region, thanks to robust growth in India. However, this strong outlook is deceptive. The detailed report mentions that in India, output growth is projected to reach 7.5 percent in FY2023/24 on the back of robust growth in Q3 of FY2023/24. Growth is expected to moderate to 6.6 percent in FY2024/25 before picking up in subsequent years as a decade of robust public investment yields growth dividends. +e expected slowdown in growth between FY2023/24 and FY2024/25 mainly reflects a deceleration in investment from its elevated pace in the previous year. Growth in services and industry is expected to remain robust, the latter aided by strong construction and real estate activity. Inflationary pressures are expected to subside, creating more policy space for easing financial conditions. Over the medium term, the fiscal deficit and government debt are projected to decline, supported by robust output growth and consolidation efforts by the central government. The report highlights that In India, economic activity surprised on the upside in 2023Q4, with growth of 8.4 percent from a year ago. +e expansion was supported by rapid increases in investment and government consumption. More recent survey data point to continued strong performance. In February, India’s composite purchasing managers index (PMI) stood at 60.6, well above the global average of 52.1 (a value above 50 indicates expansion). Growth in FY2023/24 is estimated to have exceeded earlier forecasts such as 6.3% in the World Bank’s Global Economic Prospects, January 2024 report (reported by Asia Law Portal here).
International Monetary Fund – The International Monetary Fund (IMF) recently released its World Economic Outlook (WEO) April 2024 report titled ‘Steady But Slow: Resilience Amid Divergence’. The report highlights that global recovery is steady but slow and differs by region. The baseline forecast is for the world economy to continue growing at 3.2 percent during 2024 and 2025, at the same pace as in 2023. As per this report, growth in India is projected to remain strong at 6.8 percent in 2024 and 6.5 percent in 2025, with the robustness reflecting continuing strength in domestic demand and a rising working-age population. The projected growth for 2024 has a slight increase of 0.3% from the WEO January 2024 report (as reported by Asia Law Portal here) whereas the projected growth for 2025 remains unchanged.
UN Body – The United Nations Conference on Trade and Development (UNCTAD) recently released its Trade and Development Report Update (April 2024). As per the report, India grew 6.7 per cent in 2023 and it is expected to expand by 6.5 per cent in 2024. The growth for 2023 was 0.1% higher than UNCTAD’s October report (as reported by Asia Law Portal here) and 0.3% higher for 2024 forecast in the same report. The expansion in 2023 was driven by strong public investment outlays as well as the vitality of the services sector which benefitted from robust local demand for consumer services and firm external demand for the country’s business services exports. These factors are expected to continue to support growth in 2024. In the outlook, an increasing trend of multinationals extending their manufacturing processes into India in an effort to diversify their supply chains will also have a positive impact on Indian exports, while moderating commodity prices will be beneficial to the country’s import bill. The Reserve Bank of India is expected to keep interest rates constant in the near term, while restrained public consumption spending will be offset by strong public investment expenditures.
