New Delhi: India has decisively weathered global headwinds in 2023 and is likely to remain the world's fastest growing major economy on the back of growing demand, moderate inflation, stable interest rate regime and strong foreign exchange reserves.
India's gross domestic product (GDP) expansion stood at 6.1 percent in the March quarter, despite widespread pessimism among developed nations and a worsening geopolitical scenario. Growth was 7.8 percent in the June quarter and 7.6 percent in the September quarter.
Growth was 7.7 percent in the first six months of this fiscal. The growth momentum is expected to continue in the December quarter, making India the world's fastest growing major economy ahead of China.
According to the latest growth projections of the Organization for Economic Co-operation and Development (OECD), which appear conservative, India will register a growth of 6.3 percent in 2023, ahead of China and Brazil at 5.2 percent and 3 percent respectively.
By 2024, the OECD expects India to grow at 6.1 percent and China at 4.7 percent.
On the other hand, major economies including the US, UK and Japan are likely to see a decline in economic growth rates or a nominal increase in the coming year.
India's performance on the economic front in 2023 looks even better from a global perspective. According to the International Monetary Fund's World Economic Outlook, global growth is estimated to slow from 3.5 percent in 2022 to 3 percent in 2023 and further to 2.9 percent in 2024.
Ashima Goyal, member of the Reserve Bank of India's Monetary Policy Committee (MPC), said India's growth has shown great resilience despite several external shocks. This is due to increasing economic diversification and the role of policy in smoothing shocks”.
Equipping people with better skills and assets, he said, „will give India good growth in 2024 and beyond”.
Dharmakeerthy Joshi, chief economist at ratings firm Crisil, said geopolitical developments will again test the resilience of India's domestic demand in the coming year.
„We expect GDP to be 6.4 per cent in the coming fiscal, slightly lower than the current one. The lagged impact of interest rate hikes and the global slowdown will be major drags,” he noted.
In a recent RBI State of the Economy article, “Despite significant global intervention, the Indian economy remains the fastest growing large economy in 2023. The outlook remains cautiously optimistic as consumer confidence remains positive and perceptions of current income have changed. In the latest RBI Household Survey in November 2023”.
The RBI's Dynamic Stochastic General Equilibrium (DSGE) model — which is based on microeconomic fundamentals and rational expectations that characterize the choices of agents such as representative consumers, producers and the central bank — predicts a growth rate of 6 per cent in FY2024. -25.
“After two difficult years, the economic environment is becoming more benign as inflation eases and growth is strong. Most forecasts predict growth in 2024-25 to be slightly lower than in 2023-24. Global slowdown and geopolitical uncertainty remain the biggest risks to growth,” MPC member Jayant R Verma said.
Retail inflation is on the downside after touching a peak of 7.44 percent in July. The year started with retail inflation at 6.52 per cent in January, easing to 4.31 per cent in May before rising to 7.44 per cent in July.
In November, retail inflation stood at 5.55 per cent, which was within the RBI's comfort zone but slightly away from the average rate of 4 per cent. Aditi Nair, chief economist at ratings agency IGRA, said while a well-delivered monsoon is important to curb food inflation, inflation is likely to moderate.
India's macros appear to be in a good place for 2024. Growth is expected to be 6.5 percent in FY 2024 and 6.2 percent in FY 2025.
According to the central bank's DSGE model, retail inflation is projected to ease to 4.8 percent in FY2024-25 from the estimated 4.9 percent in the current fiscal.
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