The Economic Survey 2023-24 projects a real GDP growth of 6.5-7% after taking into account the fact that the market expectations are on the higher side.
The Indian economy recovered swiftly from the pandemic, with its real GDP in FY24 being 20% higher than the pre-COVID FY20 levels. This meant a CAGR of 4.6% from FY20, despite a 5.8% decline in FY21 inflicted by the pandemic.
“The current GDP level is close to the pre-pandemic trajectory in Q4 FY24. During the decade ending FY20, India grew at an average annual rate of 6.6 per cent, more or less reflecting the long-run growth prospects of the economy. This is the background against which we can see the prospects for FY25,” says the fine print of the Economic Survey released a day ahead of Budget 2024.
Domestic growth drivers have supported economic growth in FY24 despite uncertain global economic performance, it says.
The Economic Survey cautions that private capital formation after good growth in the last three years may turn slightly more cautious because of fears of cheaper imports from countries that have excess capacity. Improved balance sheets will help the private sector cater to strong investment demand, it says.
While merchandise exports are likely to increase with improving growth prospects in AEs (advance economies), services exports are also likely to witness a further uptick, the survey says.
“A normal rainfall forecast by the India Meteorological Department and the satisfactory spread of the southwest monsoon thus far are likely to improve agriculture sector performance and support the revival of rural demand. However, the monsoon season still has some ways to go,” the Economic Survey says.
A likely reduction in policy rates by central banks of AEs, especially the Fed, will open the space for central banks of EMEs to follow the lead, bringing down the cost of capital.
On the downside, any escalation of geopolitical conflicts in 2024 may lead to supply dislocations, higher commodity prices, reviving inflationary pressures and stalling monetary policy easing with potential repercussions for capital flows, the survey warns.
“This can also influence RBI’s monetary policy stance. The global trade outlook for 2024 remains positive, with merchandise trade expected to pick up after registering a contraction in volumes in 2023. Conversely, increased fragmentation along geopolitical lines and renewed thrust on protectionism may distort merchandise trade growth, impacting India’s external sector,” it says.
“Global financial markets have scaled new heights, with investors betting on global economic expansion. However, any corrections in the elevated financial market valuations may have ramifications for household finances and corporate valuation, negatively impacting growth prospects,” the economic survey notes.
The Chief Economic Advisor has sounded a cautious note by projecting a growth rate of 6.5-7.0% for FY25, highlighting the global uncertainties and domestic challenges, says Ranen Banerjee, partner and leader economic advisory, PwC India. "There is a nudge to the private sector to invest in IP, machinery and equipment. Academia has been nudged to provide the necessary skills and knowledge for IP creation. There is an acknowledgment of the challenges faced by our exports, manufacturing and small and medium enterprises. There is also a hint at lowering our emphasis on manufacturing and adopting the agricultural sector too as a generator of jobs, which comes from a statement that our choices cannot be binary," says Banerjee.
