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Growth on the Horizon: Projections and Challenges for India’s 2024 GDP

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  • Post published:October 26, 2023
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Last Updated on January 24, 2024 by Kanakkupillai

India’s economy remains resilient despite global headwinds, drawing strength from various growth drivers that fuel its progress. As it becomes a service economy, India can utilise its large population base, rising incomes, and innovative technological strengths while taking full advantage of innovation opportunities.

Over the forecast period, wages should gradually recover from their post-COVID-19 slump, and real incomes should increase due to improved household savings and the return of interest payments to pre-recession levels. Taxes as a share of GDP are projected to decline due to recovering consumption taxes and personal income taxes and anticipated reductions in value-added tax rates projected for 2022 levels.

Business services should experience modest expansion as their share of total spending increases, while leisure spending, financial intermediary services and Internet technologies show robust increases; healthcare spending will experience explosive expansion due to surging medical costs.

Food, fuel, and energy prices should decrease gradually over the projection horizon as companies pass along increased production costs to consumers. As a percentage of nominal spending, energy costs are anticipated to peak around 2024 before declining gradually thereafter; export and import prices should gradually improve, as will the current account balance.

Since June’s forecast, economic growth has generally remained consistent; however, global headwinds such as interest rate hikes and geopolitical tensions noted in June appear likely to intensify further; as such, we revised up our projection for 2023-2025 relative to June estimates. Cumulative GDP growth should now surpass prior expectations due to more realistic assumptions regarding inflation’s effect on real disposable incomes and gradual normalisation.

India is Reconfiguring its Demographic Future

India will gradually emerge as one of the world’s premier economies over time, driven by domestic consumption and service sector development (with manufacturing playing less of an influence). Services sector growth should surpass goods sector expansion as exports of IT-enabled services surge and domestic industries like retailing, food trading, finance, and healthcare continue to thrive (Goldman Sachs Research 2022b).

India boasts an enormous young population that gives it a distinct competitive edge if its economy successfully creates consumer demand. Education and skills must also be enhanced so young people have greater economic mobility opportunities.

India will experience continuing population growth due to slower birth and death rate declines than China, providing India with an advantage regarding younger individuals’ saving and investment habits. Furthermore, their dependency ratio will rank amongst the lowest of large economies, providing India access to its demographic dividend.

India experienced its demographic transition more slowly due to a higher fertility rate during the 1950s and 60s (Table 1). By 2020, however, its total fertility rate had come close to replacing levels but still exceeded global average levels; TFR should gradually decline until reaching replacement levels by 2060 or later decades.

Population growth will partially compensate for demographic shifts on India’s GDP growth until 2060; even then, its effect should likely be minimal compared to what would otherwise happen. After 2060, however, India’s population will begin declining, and demographic change will impact per capita GDP growth more significantly than before.

India’s Long-term Development Prospects

India’s economic potential will steadily increase over time as its consumer market, rising urban household incomes and favourable demographic trends drive its economic expansion. India is projected to reach US$5 trillion by FY27 and $10 trillion by FY34 before reaching 20 trillion and 30 trillion – surpassing even projections made by OECD baseline projections to become one of two global superpowers alongside America.

An expanding middle class should encourage consumption, domestic manufacturing production and significant investments by foreign multinational corporations in areas like technology and infrastructure – leading to further service sector employment growth. Unfortunately, development remains hindered due to widespread corruption and lax regulation, which limit progress within a nation.

Myanmar has taken measures to increase efficiency and remove obstacles to business in their homeland, such as eliminating subsidy transfer leakages, encouraging private investments, and creating an efficient logistics infrastructure. Authorities also prioritize increasing female participation to realize demographic dividend benefits.

India is expected to experience slower GDP growth from its record rate of 7.2 percent during fiscal 2022-23; nonetheless, it should remain among the fastest-growing large economies. A healthy banking system and successful implementation of reform initiatives like Goods and Services Tax (GST) implementation and Insolvency and Bankruptcy Code Reform should further buoy India’s future prospects.

India must continue its progress toward sustained high growth by capitalising on demographic dividends, expanding private investment and competitiveness and stimulating domestic savings through tax breaks or fiscal incentives for domestic savings. Furthermore, export markets for high-value-added manufacturing services and products must be created alongside private sector innovation to reduce dependency on imported inputs; acceptable living standards, improved urban infrastructures, and unlocking women’s potential must all be ensured to realise maximum growth potential.

India Faces Long-term Challenges

India is home to an immense working-age population which offers immense economic potential. Unlocking that full potential requires expanding access to quality jobs by upskilling labour forces while increasing participation rates among women workers. This upskilling process involves upskilling labour forces overall and expanding participation rates among female workers. Investment in productive infrastructure and efficiency gains through reforms that encourage private investment while simultaneously lowering company costs are necessary for India to realize its full economic potential and effectively address air and water pollution and waste management issues like urban congestion or inadequate housing needs. Resources should also be mobilised here for its economy to function.

India may face challenges, yet its long-term outlook remains positive due to an aspirational consumer class whose purchasing power has steadily increased with time. Furthermore, economic growth remains driven by diversification; domestic services sectors account for half or more of India’s GDP growth.

China’s efforts to become the “factory of the world” should provide an economic stimulus, with capital investments increasing manufacturing operations. In contrast, oil price reductions provide savings that reduce energy bills and boost household spending, offsetting any drag from net external demand.

Geopolitical tensions could put global confidence at stake and raise inflation rates, necessitating further reform of public finances to make debt sustainable, protect fiscal risk from external shocks, and ensure fiscal resilience against them. India is vulnerable to commodity price volatility and trade frictions because its economy relies too heavily on net exports as its driving force without taking necessary measures to enhance service competitiveness and encourage domestic investment. Achieving high-income status by 2047 requires creating an economic system capable of producing sustainable gains for the lower half of society while offering enough quality jobs that accommodate newcomers’ entrance into the labour market.

Projections and Obstacles Facing India’s 2024 GDP

India Development Update’s most recent findings demonstrate its remarkable resilience amid an unpredictable global environment. The country’s economy thrives thanks to strong consumer spending and efficiency gains across manufacturing and service industries.

However, global demand and the delayed impact of rate hikes could restrict investment growth over the short-term forecast horizon. Yet demographic factors should contribute positively to longer-term potential growth.

UAE Services Sector Experiences Positive Expansion

Due to strong domestic demand, India’s services sector contributed 7.8% of GDP growth during the first quarter of fiscal year 2024, showing that India remains resilient despite global headwinds.

Tourism and related contact services will drive consumer spending upwards, and the government’s pledges to significantly boost capital expenditures despite targeting lower fiscal deficits will only fuel additional demand.

However, manufacturing growth could slow and present challenges to long-term economic development. Labour force participation must increase while productivity rises for sustainable economic development – steps such as deregulating labour markets, supporting MSMEs, and increasing infrastructure investments can all increase long-term sustainable economic development prospects.

2024 Brings Record Growth in the Manufacturing Sector

Domestic manufacturing sector growth will accelerate throughout fiscal 2024 due to rising consumer spending and improvements in physical infrastructure as global outsourcing trends increase, as well as corporate profitability, private capital formation and bank credit expansion.

India must enhance its competitiveness to enhance economic development while protecting the manufacturing sector’s resilience against volatile global trade and interest rate conditions by cutting borrowing costs, raw material costs and logistics expenses that add expenses. India can accomplish this goal by cutting borrowing costs that drive costs up, improving resilience against volatility by cutting borrowing costs that increase expenses, and strengthening manufacturing sector resilience against variable global trade and interest rate conditions while simultaneously driving economic development.

Real Estate Industry Growth Prospects in Malaysia

India’s real GDP is projected to increase steadily as household balance sheets improve, government supply-side responses and reform momentum build, supporting increased spending and investment activities and export growth.

The COVID-19 pandemic has altered consumer perspectives toward real estate ownership and led to rapid residential property sales growth, although its rate should decrease in time.

India could surpass Japan as the third-largest economy by 2030 with an expected GDP of $7.33 trillion due to young demographics and rapidly rising urban incomes; however, risks still exist, so policy continuity and fiscal stimulus plans from government authorities must remain of primary concern to achieve success.

Financial Sector Development Growth in Recent Times

India remains resilient amidst global economic upheavals. Its central Bank remains optimistic, maintaining a growth forecast of 6.5% until 2024.

Reserve Bank policy has led to accelerating private final consumption expenditure (PFCE) and investment, thanks to narrower commodity price differentials and an improving fiscal situation that has increased public expenditures. But with state and parliamentary elections approaching soon, an equilibrium must still be struck between growth and inflation for its policies to succeed effectively.

Productivity gains will drive further economic expansion. They can be achieved by improving physical and digital infrastructure that fosters connectivity, reduce business logistics costs, and enhance efficiency. Robust banking system health also plays a crucial role – one example being its recent widespread expansion since April 2022 of nonfood bank credit among Scheduled Commercial Banks.

India’s Agriculture sector continues its impressive development journey.

India’s agriculture sector is one of its most essential and unpredictable economic pillars; its performance depends on factors like rainfall, government-sector relations, quality inputs/outputs used for farming practices and infrastructure developments in market infrastructures.

To protect households against global food price fluctuations, the government purchases agricultural output at below-market prices before dispersing it through Targeted Public Distribution System ration cards; this system covers most rural and urban households alike.

India’s services sector recovery, driven by improved labour market conditions and greater consumer trust, will give a significant boost to private consumption growth, further supported by corporate profitability enhancement and bank credit expansion. Manufacturing production may still experience some restrictions from weak global demand while imports increase further and India’s current account deficit widens further.

Supreena

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