For India, 2023 was a good year, highlighted by strong economic growth, impressive tax mobilization, a stable rupee and booming capital markets. Will the economy continue on a similar path in 2024? Mint examines factors that can support or disrupt the dream run.
For India, 2023 was a good year, highlighted by strong economic growth, impressive tax mobilization, a stable rupee and booming capital markets. Will the economy continue on a similar path in 2024? Mint examines factors that can support or disrupt the dream run.
How has the economy developed in 2023?
In 2023, the Indian economy's strong performance exceeded expectations. The 6.1% growth in the January-March quarter took the growth in FY23 to 7.2%. The April-June and July-September quarters saw strong growth of 7.8% and 7.6%, respectively. For the quarter ending in December, 6.5% is expected. A strong investment boost, rising consumption and sustained growth in the global economy contributed to this good development. Direct tax revenue increased 18% as of November 9th. Collection of Goods and Services Tax (April-November) increased by 12%. The rupee remained stable. Inspired, foreign investors flocked to the country ₹1.65 trillion, which sent the stock market soaring.
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How has the economy developed in 2023?
In 2023, the Indian economy's strong performance exceeded expectations. The 6.1% growth in the January-March quarter took the growth in FY23 to 7.2%. The April-June and July-September quarters saw strong growth of 7.8% and 7.6%, respectively. For the quarter ending in December, 6.5% is expected. A strong investment boost, rising consumption and sustained growth in the global economy contributed to this good development. Direct tax revenue increased 18% as of November 9th. Collection of Goods and Services Tax (April-November) increased by 12%. The rupee remained stable. Inspired, foreign investors flocked to the country ₹1.65 trillion, which sent the stock market soaring.
Will this dream run continue in 2024?
It could. The Reserve Bank of India has estimated GDP growth at 7% for FY24. Fitch Ratings forecasts growth of 6.6% to 6.8% in 2024. The factors that drove economic growth in 2023 remain. The focus remains on capital spending, with states spending heavily. Consumption will continue to rise as rural India starts spending more. Indian companies' investments are increasingly catalyzed by production-related incentive systems. Inflation appears to be under control and further interest rate hikes are therefore unlikely. Exports are recovering as monetary tightening in developed economies has eased and inflation has been contained.
Will the election accelerate economic growth?
The general elections are due in May. There is no evidence that elections cause an economic recovery. In the last three elections, the economy slowed twice and grew slightly once. Experts expect the growth rate for FY24 to be marginally lower than 7.2% in FY23. Their fears are more about the risk of wasted funds and its repercussions as populism has increased in recent elections.
What is the global economy like?
Rapid inflation in most developed economies forced their central banks to raise interest rates, causing global economic growth to slow from 3.5% in 2022 to 3% in 2023. The International Monetary Fund (IMF) expects growth of 2.9% for 2024. Fears of a recession in developed countries have receded as monetary policy tightening has almost ended. The IMF expects global inflation to fall from 6.9% in 2023 to 5.8% in 2024. The Chinese economy is back on track for growth following the measures taken by the government.
What can disrupt this economic recovery?
A flare-up in geopolitical tensions could spoil the game. The widening Israeli-Palestinian crisis appears real as Houthi rebels attack ships in the Red Sea. This could lead to a disruption in the supply chain. As the conflict expands (the US says Iran is behind the Red Sea attacks), prices of oil and other raw materials will rise. This could stoke inflation, trigger another round of interest rate hikes and dampen the economic recovery. Even though China is back on track for growth, it is still uncertain as it struggles to get its housing crisis under control.
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