Economy needs some fixes to thrive in 2024
How 2024 pans out for India could set the tone for the country’s long-term economic prospects. Year 2023 was better than expected for the country’s economy with real GDP growth comfortably higher than 7% in the first three quarters. Even with a likely 6.5% growth in the December quarter, the 2023 GDP growth would be closer to 7%. With such strong performance in the past year and a much better fiscal position to begin with, the new year could mean India has all the ingredients for another strong performance even if global growth runs into a recession. The general elections in 2024 could be a defining moment for the country. Analysts predict policy continuity but even if there’s a surprise election result, the economy will continue to perform well on the back of the country’s demographic advantage and a slowing China.
As of end-2023, the economic fundamentals of the country are well placed. The GDP in the second quarter of FY24 grew by 7.6%, beating all estimates. Full-year GDP growth projections have been increased to 7% from the earlier 6.5%. The inflation, though not anywhere close to the RBI’s target of 4%, is below 6%. The trade deficit is narrowing – April-November 2023 trade deficit was at $61 billion against $100 billion in the same period last year. As a result, India’s current account deficit is now much lower than it was in the previous year. The country’s foreign currency reserves are now at $620 billion, the highest since April 2022.The Centre’s gross collections recorded a growth of 15% in the April-November 2023 period. The equity markets in 2023 surged 20% as most parameters pointed towards a strong economic performance.
However, a few crucial indicators need to gain momentum for the Indian economy to keep doing well in 2024. For a good part of the past three years, the economy has suffered from poor private-sector investments. There are signs of a pick-up in corporate loans and private capex, but they need to manifest more strongly in 2024 for India to keep growing above 7%. The consumption cycle, especially in the rural areas, must also show clear signs of revival to ensure that the fruits of economic growth are reaching all sections of the society. Lack of quality jobs also remains a cause of worry for an economy that looks to reap the benefit of demographic dividend. If India could fix these problems in 2024 without fiscally being too imprudent, the road ahead is bright.