INDIA’S ECONOMIC SAGA IN ELECTION YEAR 2024

BY Sapna

As we get ready for the parliamentary elections this year, we are bound to see the shifts in the drivers of Indian economy, irrespective of which party will win. A normal tendency after any election is that of a slowdown in the capital expendi- ture by the government. Economists believe, this will be more than com- pensated by private investments, given their confidence on stable and resilient India, that despite global uncertainties, managed to sail ahead.

Dr. Rumki Majumdar, Direc- tor, Deloitte India expresses her optimism about India’s near-term growth outlook. “We have upped our forecast for this year’s growth after the big bang GDP numbers we witnessed in the second quarter of fiscal 2024—that is between 6.9% and 7.2% or even higher—given the robustness observed in the industry sector. We believe momentum will be strong as the world recovers later in 2024, and as that global recov- ery tide lifts all boats, India will see much broader economic growth. We are also cognizant of downside risks as India head to the polls this year, which will add to political un- certainties, but we begin our outlook remains optimistic.”

THE PROMISING YEAR OF 2024

In the year 2023, the key sectors of the economy, construction, man- ufacturing, financial and real estate services showed sharp recovery and growth and even hospitality, trad- ing, and logistics sector performed well. With strong manufacturing momentum and positive trends across education, healthcare, IT, and PLI-industries, 2024 presents a promising growth trajectory. The rel- atively stable Indian rupee against the US dollar and other prominent currencies, and adequate foreign exchange reserves add to this op- timistic outlook.

India’s growth journey over the last decade, despite geopolitical conflicts, elevated oil prices and recession fears, has remained steady and in fact attracting the global investors with its robust macroeco- nomic fundamentals.

India has a large and growing market, a young tech-savvy work- force and stable government with focus on infrastructure development that offers significant opportunities for investors and businesses for en- gaging in market expansion, portfo- lio diversification and mergers and acquisition.

India’s digital economy, tech-en- abled governance, rapid growth of e-commerce and urban spending across metros, tier- 2 and tier-3 cities reflect the buoyancy in the Indian economy India’s growing middle class that presently represents 31 percent of the population, provid- ing wide consumer base, improving business environment and stream- lined compliance are making India an attractive destination for foreign manufacturers.

Presenting a vivid picture of how 2024 looks like, banking pen- etration that stood at around 25% ten years back has risen to 80% and the GST collection and the government expects to surpass the GST collection target for FY24, from the record high of Rs 1.87 lakh crore in April 2023.

DIVERGENT VIEWS

The International Monetary Fund (IMF) has warned that India’s general government debt may exceed 100% of gross domestic product (GDP) in the medium term. However, the Indian government maintains that risks associated with sovereign debt are notably limited as it is mainly in domestic currency. The IMF also reclassified India’s exchange rate regime, terming it a "stabilized arrangement" instead of "floating". The Reserve Bank of India (RBI) has dismissed it as “unjustified" and based on “subjective selection, saying that their interventions were necessary to actively manage the rupee volatility, since imported in- flation is a crucial element of India’s overall inflation that impacts 1.4 billion people.

While IMF has projected a bal- anced outlook for India's economic growth, revising the medium-term potential growth rate at 6.3 percent, from the 6 percent estimated earlier, the Indian government estimates a potential growth rate of 7-8 percent.

THE ECONOMIC STORY SO FAR

There is no doubt that India has effectively managed inflation amidst global commodity price hikes through extensive govern- ment interventions, but economists expect food inflation to remain high in the first half of 2024 and expect headline inflation at 5.4% year-over-year during that period, well above the RBI’s target of 4.0%. For the whole year, they expect headline inflation at 4.9%, with core inflation at 4.3%. For these reasons RBI will be slow to cut interest rates.

With the aim to reduce the fis- cal deficit—the difference between the government’s income and ex- penditure—to 5.9% of GDP during FY2024, from 6.4% in the previous fiscal, we are likely to see a decline in public capital expenditure as a share of GDP along with other mea- sure to prevent increase in government debt in coming years.

Present  economic forecasts

The Reserve Bank of India, has recently raised its India’s real GDP growth forecast to 7%, which was earlier projected to grow at 6.5% in 2023-24, The Finance Ministry is indicating an uptick over 6.5% as of now, for the year ending March 31, 2024.

S&P Global Ratings expects India to become the 3rd largest economy by 2030 & believes that India will be the fastest growing economy in the world for the next 3 years. JP Morgan too, expects India to become the third largest economy in the world by 2027, expecting the Indian economy to hit $7 trillion by 2030. And even by the IMF’s conservative estimates, India will emerge as the world’s 3rd largest economy by 2027 surpa sing Japan and Germany.

THE INDIAN ECO OMIC GROWTH STORY IS THAT OF RESILIENCE AND PUSHING FORWARD DESPITE THE HEADWINDS. THERE IS A NEED FOR CAUTION AGAINST THE EVOLVING GEO- POLITICAL SCENARIO AND ITS DIRECT AND INDIRECT IMPACT ON INDIAN ECONOMY. ADAPTABILITY AND CAREFULLY CALIBRATED GOVERNMENT POLICIES IN THE COMING YEARS WILL ENSURE A CONTINUED GROWTH FOR THE COUNTRY.

OPTIMISTIC SCENARIO
Regional wars remain contained without having major implications for global supply chains and
economy. Growth in the United States and the European Union will likely rebound later in 2024.
There is political stability after elections in India and other major industrial nations such as
the United States.
?The US Fed continues to pause policy rate hikes as inflation moderates.
?Crude oil prices remain low and range-bound as a Chinese economic slowdown and pace of global
energy transition keep oil prices from rising.
?The Reserve Bank of India maintains a tighter monetary policy to ensure no strains on the lending
sector.
?Government efforts toward consolidation of expenses continue, supported by buoyant revenues, even
though expenses go up due to upcoming elections.
?State and central election results do not bring any political instabilities.
?Robust infrastructure capex and PLI capacity investment boost private investment
spending.

PESSIMISTIC SCENARIO

The Russia-Ukraine crisis continues for a prolonged period.
Tensions escalate with several nations getting directly involved in the war. The United States and
Europe enter a recession with significant political upheavals. The crisis in the banking system
raises significant tail risks for economic activity.
?Prolonged crises lead to second-order
implications on financial stability and supply chain disruptions.
?Crude oil prices breach the US$110/barrel ceiling.
?Political instability ensues after central and state elections impact market
sentiments.
?Inflation spirals up both globally and domestically, impeding investment growth.
?Climate inaction leads to more natural disasters that weigh on growth, further dampening
sentiment.
? The Reserve Bank of India effects further
retracts later as h tumbles.

Tags : ECONOMIC STORY Dr. Rumki Majumdar Deloitte India general government geopolitical conflicts education healthcare IT PLI-industries