India's Finance Ministry released an annual economic review report on July 6, stating that the country is poised to sustain its growth in a more durable way than before. The report highlights the impressive macroeconomic management of India despite facing unprecedented global challenges and balance sheet troubles in the banking and non-financial corporate sectors. However, it also cautions about potential headwinds that must be addressed to ensure continued growth.
Robust Growth & Positive Outlook
According to the report, India's economy grew by 7.2% in FY23, with the growth in the January-March quarter playing a significant role in the overall expansion. This positive growth momentum is expected to continue into the current year. Various forecasting agencies, including Fitch Ratings, S&P Global Ratings, and the Reserve Bank of India (RBI), have revised their growth estimates upwards for FY24.
Fitch Ratings raised its forecast for Indian economic growth to 6.3% for the current fiscal year, while S&P Global Ratings retained India's economic growth for FY24 at 6% and projected a GDP growth of 6.9% for FY25. The RBI has estimated a growth rate of 6.5% for FY24.
The Ministry's report commends India's stellar macroeconomic management in the face of global challenges. It highlights that despite the difficulties faced in recent years, India has managed its macroeconomy exceptionally well. The report also mentions that the performance of GDP growth in the fourth quarter of FY23 addressed concerns about the recovery of consumption and investment demand, surpassing the pre-pandemic growth trajectory.
The report indicates that India's real Private Final Consumption Expenditure and real Gross Fixed Capital Formation have exceeded the pre-pandemic trend trajectory, indicating a robust recovery. However, negative net exports and their impact on real GDP have prevented the post-pandemic growth from crossing the pre-pandemic path.
The report states that the decline in India's import prices and the sustained surge in service exports are expected to narrow the net exports gap sooner than anticipated, enabling real GDP to surpass its pre-pandemic trend trajectory in the near future.
Investments in Supply-side Infrastructure & Financial Stability
While expressing confidence in India's economic prospects, the Finance Ministry's report advises caution and emphasizes the need to avoid complacency. It warns about the risks India may face, including escalation of geopolitical stress, increased global financial volatility, global stock price corrections, El Nino's impact, and modest trade activity and foreign direct investment inflows due to weak global demand.
The report further mentions that the Indian economy has carried its momentum from FY23 into the current fiscal year, supported by various high-frequency economic indicators. The Manufacturing PMI stands at 57.8, while the Services PMI is at 58.5. GST collection has reached ₹1.61-lakh crore.
The report emphasizes the importance of investments in supply-side infrastructure to achieve sustained economic growth. It highlights that strong balance sheets and digital advancements can lead to better credit decisions, enabling India's financial cycle to sustain for longer periods before encountering challenges related to bad debts. The report concludes by emphasizing the need to maintain economic stability and remain vigilant to ensure continued progress.