NEAR-TERM OUTLOOK FOR ECONOMIC ACTIVITY UNEVEN
External demand is expected to be cautious following the ongoing geopolitical tensions and continuing Monetary Policy tightening by major Central Banks of some advanced economies, which could weigh on merchandise and services exports. The GoI has enhanced high-multiplier capital spending in the Union Budget for FY2024. The large pipeline of infra projects, scheduled to be completed in FY2024, will aid in pushing project commissioning and thereby support investment demand. Timely execution remains the key. Private sector capex is likely to pick up in FY2024 amid the rise in value of new project announcements, improving capacity utilisation levels, PLI schemes and GoI initiatives pertaining to clean energy. Besides, the GoI’s capex push has the potential to ‘crowd-in’ private capex. Consumption of services remains quite robust while demand for goods is somewhat uneven. A sustained moderation in inflation would be the key to support consumption of low- and middle-income households. Momentum of real estate demand is maintained, but increase in interest rates is a risk. However, Government push for infrastructure, one of the drivers for construction and cement sectors. The Introduction of NLP is a long-term positive for the Indian logistics industry, given its overall focus on attaining better integration of different modes of transport, which in turn shall lead to faster turnaround and higher efficiency. It is also expected to lower the cost of logistics by reducing the over-dependence on the road sector, thereby reducing congestion and ensuring better asset utilisation. The Government launched the National Infrastructure plan (NIP) with a vision to becoming a USD 5 trillion economy, the target for which is now FY2027. This will need USD 1.5-1.8 trn of infrastructure investment over five years, which is almost 2-3x of the current spend. NIP will boost the capex spend by 2-4x for most of the sectors that are primarily impacted. Ancillary sectors are also likely to have a positive impact.
Tags : economic activity demand Monetary Policy Central Banks economies real estate