The story so far: The year 2023 had started bleakly amid the fallout from the Ukraine-Russia conflict, such as rising oil prices and high inflation, with concerns that an economic slowdown would lead to a hard recession landing for advanced economies that would drag on would also slow growth in emerging countries like India. As it turns out, the year has been friendlier than expected and the worst fears have not yet come true, despite a new geopolitical flashpoint in West Asia and a few bank failures in the West (think Silicon Valley Bank or SVB, whose implosion forced us to do so). Please contact Shamrao Vithal Co-operative Bank to clarify that everything is fine. While Indian stock markets ended the year at record highs, the economy delivered positive surprises: ₹1.6 lakh crore became the new normal for monthly GST collections and GDP growth touched 7.7% between April and September, in addition to one Increase of 7.2% in 2022 -23.
What should you pay special attention to at the beginning of the new year?
The Reserve Bank of India, which had earlier forecast India's real GDP to grow at 6.5% in 2023-24, recently raised its forecast to 7%. The Treasury is currently more confident, citing an increase of over 6.5% for the year ending March 31, 2024 in its economic report published on Friday. Global agencies have also restarted their growth calculations for India. “Some of the key sectors of the economy – construction, manufacturing, financial and real estate services – are recording robust growth and even the retail, hotel and transport sectors, which had remained below their pre-COVID levels in 2019-2020, have now increased fully recovered,” noted economist and chief policy advisor at EY India DK Srivastava said. “The Indian economy has now come far beyond the COVID shadow and has weathered well the global headwinds created by the ongoing geopolitical conflicts, relying on domestic growth stimuli,” he estimated. As the domestic growth engine advances, risks to growth and stability prospects come primarily from outside the country, the Finance Ministry noted. Weak global demand has hurt goods exports through 2023, and IT-driven services exports may come under greater pressure next year as developed economies continue to face challenges. While hopes for a peaceful resolution in conflict zones remain low, new disruptions such as attacks on shipping lines in the Red Sea corridors could pose a greater challenge. Central bank interest rate cuts are being closely monitored.
What is expected from politics and political economy?
There could be some kind of lull in the first half of 2024 as the government prepares for the Lok Sabha elections. Finance Minister Nirmala Sitharaman, who will present an interim budget on February 1, has indicated that there will be no spectacular announcements, just a vote on public spending needs until a new government is sworn in. But the last such exercise in the 2019 elections included a revamp of income tax rates and the unveiling of the PM-Kisan scheme that put cash in the hands of farmers. The full budget for the year, expected in July, will include a wider range of policy changes. Most investors looking for signals on governance and reforms will have to wait until then, Ms. Sitharaman said. Policymakers will be keeping a close eye on whether private investment, which has begun to recover in sectors such as steel, cement and automobiles, becomes more widespread, allowing the government to step back from the public investment pedal and focus on fiscal consolidation. While the fight for a parliamentary majority may not depend solely on economic issues, the poll results will influence the direction of policymaking. And this doesn't just apply to India. “Politics can also cause turmoil and uncertainty, with 40 national elections coming up in 2024 alone, representing 41% of the world’s population. “Russia, India, the European Union and the United States will hold elections that are likely to change the course of global affairs in the second half of the decade,” said Avinash Satwalekar, president of Franklin Templeton Asset Management India. Global voter sentiment amid a growing shift toward inward-looking, protectionist policies in many countries could therefore impact trade deals and the broader direction of global economic engagement.
Are there greater hopes for rate cuts in 2024?
While most expect the Reserve Bank of India to begin cutting interest rates in the second half of the year, the US Federal Reserve's suggestion that it would end its cycle of interest rate hikes has raised hopes among many other central banks to follow suit. A Bank of America report earlier this month said there will be 152 interest rate cuts by central banks around the world next year. If they occur, demand for Indian goods and services could rise again in 2024. In the Indian context, industry and consumers are also eagerly awaiting changes to two other tariffs – the prices of petrol and diesel, which have been frozen since mid-2022 (even though global oil prices have fallen sharply in recent months) and the unwieldy framework for several GST Sentences. Prime Minister Narendra Modi hinted at a review of retail prices of petroleum products during the recent general election campaign. Perhaps some relief can be heralded before the Lok Sabha battle. The rationalization of the GST rate, on the other hand, is likely to gain momentum only after the elections but could prove to be an important election promise.
Is inflation and its impact on consumption no longer a concern?
Despite occasional spurts, India's inflation trajectory appears to be better under control than it was a year ago. The RBI expects retail inflation to average 5.2% in the first half of 2024, before falling to its 4% target between July and September and rising to 4.7% in the final quarter. However, as the governor has pointed out, food prices remain a concern. With Kharif crop estimates not rosy and El Niño effects affecting Rabi sowing, supplies of various food items, including pulses, could remain under pressure, further straining household budgets. Weaker agricultural sector performance would also slow rural demand, leading to a trend of uneven consumer demand – with high-value goods and services booming while low-cost segments lag behind. Recent restrictions on personal loans and weak hiring trends in sectors such as IT services could also have a negative impact on urban demand. Without a broader surge in consumption, private capital spending will likely be limited to some sectors, which may not be enough to trigger the virtuous cycle of investment needed to create more and better jobs that can increase spending capacity and factory utilization.
This is a premium article available exclusively to our subscribers. Read more than 250 premium articles like this every month You've exhausted your free article limit. Please support quality journalism. You have exhausted your free item limit. Please support quality journalism. X You have read {{data.cm.views}} out of {{data.cm.maxViews}} free items. X This is your last free article.
Comments are closed.