Editorial     

Published: November 30, 2023
Updated: November 30, 2023

India on economic autobahn!

There is very good news from the economic front, indicating an optimistic outlook for the Indian economy for the current fiscal ending March 2024 and the next fiscal ending March 2025. The Union Finance Ministry’s monthly economic report and the RBI’s bulletin claim the arrival of ‘green shoots’ in private investment triggered by higher government capex. Their assessment is based on:

(a) Crisil data showing a CAGR of 7 per cent in private industrial investment during fiscal years 2018 to 2022; (b) CMIE data showing new investment announcements that are 11.6 per cent higher in Q1FY2024 and are the highest in the last 14 years; (c) Private GSCF (gross fixed capital formation) rising from Rs 17.4 lakh crore in fiscal 2018 to Rs 23.7 lakh crore in fiscal 2022; (d) capacity utilization rising by 76.3 per cent in Q4FY2023; (e) IIP moving up by 4.5 per cent in fiscal 2024; (f) imports of capital goods going up by 20.3 per cent in fiscal 2023 and 4.1 per cent in Q1FY2024; (g) Nonfood bank credit growing in double digits since April 2022; and (i) PLIs for new-age sectors (like green hydrogen, semi-conductors, wearables and solar modules) expected to account for 17 per cent of capex between fiscals 2023 and 2027.

According to the International Monetary Fund (IMF), India will emerge as the world’s third largest economy in 2027, leapfrogging over Japan and Germany to a GDP of $ 5 trillion, and aspiring to become a developed country by 2047. According to experts, India will need at least 6.5 per cent growth to reach its first target in 2027 and 8-9 per cent growth to reach the second target in 2047. The visible buoyancy in the economy, at least given the 7.8 per cent GDP growth in Q1 of this fiscal, instills confidence that the country will likely fulfill these predictions.

Given the growth in Q1 of this fiscal, it can be expected that the economy will grow in the range of 6.5-6.8 per cent this year, primarily due to festive spending followed by higher government spending before the forthcoming general elections. Next year too, GDP growth can be expected around 6.5-6.8 per cent as geopolitical uncertainties subside and the global economy bounces back stronger.

As per the Centre for Monitoring Indian Economy (CMIE), the expenditure database shows a strong jump in the first quarter of FY2024. Moreover, the pipeline of incoming projects appears quite strong. The manufacturing and construction sectors have been buoyed by the pick-up in capital expenditure by the government, while demand for new residential properties and falling input prices of raw material witnessed robust yoy growth of 4.7 per cent and negative growth of 7.9 per cent respectively. But the biggest boost in growth has come from the services sector, which grew 10.3 per cent yoy in Q1FY2024.

The stock market has turned distinctly buoyant, with leading indices shooting up to new all-time high levels. The Sensex, the most popular index based on 30 pivotal scrips quoted on the BSE, and a barometer of the mood of the country’s economy, recently scaled a new high of 69,296 while the Nifty50, based on 50 leading stocks quoted on the National Stock Exchange, crossed the historical 20,000 mark to reach 20,856.

Despite worrisome global geopolitical issues – particularly the Israel-Hamas conflict and the prolonged Russia-Ukraine war – the Indian stock market continues to be buoyant, thanks to favourable results from various industry sectors. The Information Technology sector, which some pessimists feared would go south under the pressure of the North American economic decline, has turned distinctly robust with leaders like TCS and Infosys putting up heart-warming shows for the first half of the current fiscal.

The automobiles industry, which accounts for 7 per cent of India’s GDP, employs millions of workers and contributes substantially to the country’s economy, has started the new Vikram Samvat with a bang. Other industrial sectors like FMCG, construction and wires & cables have also started doing very well.

On the political front too, the mid-term poll results in five states have underlined the strength of the country’s democratic institutions and have buoyed market sentiment. All said and done, it’s ‘full steam ahead’ for India’s economy.