In the grand stage of global economics, India takes charge as the protagonist of the Indian economic journey, or we can reminisce about the Soldier in the ‘Seven Ages of Man’ monologue from Shakespeare's epic play As You Like It.
Just like one of the stages in the poem, the Soldier exemplifies the Indian economy as a dynamic and fearless force - driven by the aspirations of its people and ready to face any global challenges. It aims to upgrade its global stature and embraces opportunities even in the cannon’s mouth.
The recent data released by the Indian government divulge a remarkable surge in the Gross Domestic Product (GDP) during the June quarter, recording its fastest pace of India`s growth in a year. With a surprising 7.8% expansion on an annual basis, India is not only surpassing expectations but also outpacing many of its regional peers in the emerging markets landscape.
Join us as we explore into economic evaluation and evolution while exploring the pathways that promise a brighter future.
Growth Forecast: A Silver Lining Amidst Global Challenges
Amidst weak global demand and tightening monetary policies worldwide, the Indian economy continues to show extraordinary resilience. Despite fears of a global recession, India's economic outlook remains upbeat.
The Indian economic landscape has bounced back, demonstrating a stark contrast to the challenging times it faced in recent years. The 7.8% growth in Q1FY23-24 reflects a synergy of positive factors. A major surge in government capital expenditure, strong services momentum, improved consumption, and a favourable base have all contributed to this resurgence.
The economy seems to have harnessed its inner strength and resilience; even as global challenges persist. Several key factors contribute to this positive outlook:
- Service Sector: On the supply side, the services sector has emerged as the undisputed champion, consistently outpacing industrial performance. High-demand contact-intensive activities, coupled with growth in finance and real estate services, have been instrumental in this achievement.
- Private Consumption Resurgence: A rebound in private consumption has injected vigour into production activities. Near-universal vaccination coverage has enabled people to engage in contact-based services, revitalising sectors such as restaurants, hotels, and cinemas.
- Capital Expenditure Surge: Higher Capital Expenditure (Capex) has significantly strengthened the Indian economy, crowding in private Capex and fostering manufacturing and investment activities.
- Banking Sector Strength: Public sector banks are assisting in driving India`s economic growth by providing credit to MSMEs. The sector has seen high growth rates, supported by government schemes. MSMEs are recovering, and the ECLGS (Emergency Credit Linked Guarantee Scheme) is easing their debt concerns.
- Government Initiatives: Key government initiatives like PM GatiShakti, the National Logistics Policy, and Production-Linked Incentive schemes further stimulate manufacturing output, enhancing India’s competitiveness among the emerging markets.
Indian Economic Edge in the Face of Global Challenges
Q1FY23-24 might likely mark the peak in the near-term growth trajectory due to economic promptness and global recession concerns:
- Pandemic Response: The speedy recovery from the pandemic and the successful vaccination drive have strengthen Indian economic resilience. Private consumption and capital formation have surged, contributing to employment growth.
- Geopolitical Strife Impact: Geopolitical strife in Europe has posed challenges, leading to revisions in growth forecasts. Nevertheless, thegrowth estimate for FY23 remains higher than most major economies.
- CAD and External Pressures: Elevated global commodity prices have widened the Current Account Deficit (CAD). The depreciating rupee remains a concern, with potential impacts from further policy rate hikes by the US Federal Reserve.
Subsequent quarterly figures are expected to gradually decrease, primarily due to several factors. These include the lagged impact of past monetary tightening, global challenges and slowdown spill overs, uncertainties related to monsoon performance.
With over half of India's population residing in the Indo-Gangetic Plain, it confronts escalating, severe heat waves attributed to climate change. These climatic shifts lead to an alarming annual toll with a reduction between 2.5% and 4.5% of GDP. This is because of detrimental consequences such as reduced labour productivity, diminished wheat yields, increased livestock casualties, and electricity disruptions.
Whileexceptional strides have been made, substantial gender disparities are also under the radar. India has been crafting policies to integrate gender considerations and tailored benchmarks. Meanwhile, schemes like the Maternity Benefit Act and Prevention of Sexual Harassment at Workplace Act, bolstering childcare support, vocational training, and lifelong learning opportunities for working women, represent a significant stride.
Outlook for 2023-24: Strengthening Economic Landscape
For 2023-24 and beyond, the recovery from the pandemic is set to continue, driven by strong domestic demand and increased capital investment. Government support and structural reforms, including the Goods and Services Tax and Insolvency and Bankruptcy Code, enhance efficiency and transparency within the Indian economy.
Growth is inclusive when it creates jobs and benefits all segments of society. The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and other initiatives have provided employment opportunities and improved rural welfare indicators, further reinforcing the Indian economic foundation.
India, like the rest of the emerging markets, faces an extraordinary set of global challenges, including the consequences after the pandemic, geopolitical conflicts, and the disturbance in the supply chain. As a result, India's ability to withstand these shocks showcases its remarkable economic resilience even amid a looming global recession.
Final Thoughts
Economists and analysts unanimously praised India's exceptional Q1FY23-24 performance. Forecasts suggest a moderation in GDP growth to around 6.0%, with some mild upside potential. However, there are nuanced observations to be made. While services thrive, the manufacturing sector, despite a Y/Y growth of 4.7%, fell short of expectations.
This outlook accounts for the complexities of the Indian economy, the global challenges it faces, and domestic factors, highlighting the need for a balanced perspective.
ViTWO Finance reinforces the fact that sustainable development also hinges on advancing gender equality across various facets, including healthcare access, education, and financial resources. Additionally, fortified enforcement of women's land rights enhances their economic standing, enabling them to leverage these assets as collateral for investments in climate resilience. The convergence of these efforts will bring positive transformations on climate, gender, and economicfronts.
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