As we step into 2024, there’s a notable air of optimism surrounding the Indian economy. Virtually every economic parameter indicates an improvement compared to the previous year. Barring unexpected external or weather-related shocks, the economic landscape seems poised for takeoff. The adept use of policy tools has shielded the Indian economy against challenges, including two wars, in the past two years.
Looking Forward:
The upcoming national election holds the spotlight, and while many believe the outcome is predictable, investors may exercise caution until the election results are clear. Until May, when the elections are due, it’s anticipated to be business as usual. The government has signaled that the budget will hold no surprises, serving as a vote on account, with the full budget expected around June, accompanied by new policies. Given the current government’s commitment to fiscal prudence, movement along the existing glide path is likely.
Predicting 2024-25:
Gazing into the economic crystal ball for 2024-25, GDP growth is expected to approach 7%, building on the 6.5-7% growth recorded for FY24. The conditions for sustained growth seem favorable, with a focus on addressing two crucial aspects: rural consumption and private investment. Revival in rural demand is anticipated after a slowdown attributed to unfavorable crop conditions. Private investment, which has centered on infrastructure, is expected to diversify across industries in 2024. The elections often serve as a decisive factor for companies, leading to an exciting year for private investment.
Inflation and Monetary Policy:
The Reserve Bank of India (RBI) has signaled a decline in inflation to 4% in July-September, with a subsequent rise in October-December, remaining below 5%. This sets the stage for potential repo rate cuts in the coming year. Expectations should be tempered, as any cuts are likely to be modest, perhaps up to 50 basis points, contingent on normal monsoon conditions. The RBI’s commitment to targeting 4% inflation remains steadfast, with any deviation accepted only in the short term.
Shifts in Interest Rates:
For savers, the era of high-interest rates on deposits may conclude as reductions in the repo rate could translate to lower deposit rates. On the flip side, borrowers stand to benefit, with over half of borrowing relying on external benchmark rates. This shift could challenge banks as they compete with mutual funds for savers’ funds.
Market Dynamics:
The stock market has demonstrated resilience, aligning with improved corporate profitability. With expectations of an even better economy in 2024, valuations are anticipated to be robust, leading to further growth in stock indices. This trend is not unique to India but extends globally.
Currency and External Factors:
The currency’s performance remains a key variable to monitor. Favorable factors, including a weaker dollar and improving external fundamentals, suggest a stable rupee in the range of ₹82-84 per dollar for the year. External capital flows, buoyed by the expected inclusion of Indian bonds in the global bond index, contribute to this stability.
As 2024 unfolds, promising economic prospects bring the potential for increased stability and job creation. This positive trajectory, if sustained, positions India to move closer to the ambitious goal of becoming a $5 trillion economy, crossing the 7% growth threshold. The year ahead holds the promise of economic growth, stability, and progress.