Resilience and Recovery in the Indian Economy
India’s economy has showcased remarkable resilience and steady growth post-pandemic, as highlighted in the Economic Survey 2023-24. The real GDP for FY24 is 20% higher than FY20, driven by strong public infrastructure spending, digitalization, and structural reforms under the Atmanirbhar Bharat Abhiyan. This has resulted in robust private investment, reduced unemployment, and inclusive growth.
The recovery is further evidenced by the compounded quarterly growth rates (CQGR) between Q3 FY21 and Q4 FY24, which have surpassed pre-pandemic levels (Q1 FY12 – Q4 FY20). Key metrics include:
- GDP CQGR: 1.9% (Q3 FY21 – Q4 FY24) vs. 1.5% (Q1 FY12 – Q4 FY20).
- GVA CQGR: 1.8% vs. 1.5%.
- PFCE CQGR: 1.7% vs. 1.4%.
- Industrial GVA CQGR: 1.4% vs. 1.1%.
- Services GVA CQGR: 2.1% vs. 1.9%.
- GFCF CQGR: 2.0% vs. 1.3%.
Despite this progress, the services sector GVA has not yet reached its pre-pandemic projections, particularly in trade, hotels, road, and air transport sectors, which are only 1% above FY20 levels. This indicates areas needing focused recovery efforts to match the overall economic rebound.
Global Economic Scenario and Its Impact
The global economy grew by 3.2% in 2023, slightly lower than the previous year. Consumer Price Index (CPI) inflation decreased from 8.7% in 2022 to 6.8% in 2023. Export volume growth for goods and services improved from 0.5% in 2022 to 3.7% in 2023. However, geopolitical conflicts, high borrowing costs, and global economic fracturing led to a decline in global Foreign Direct Investment (FDI) flows in 2023 compared to 2022.
Global economic dynamics have direct implications for India’s trade and investment landscape. The fluctuations in FDI flows, influenced by geopolitical tensions and changes in monetary policies in advanced economies, require India to navigate its external sector strategies cautiously. The improvement in export volume growth reflects a positive trend, contributing to the overall economic stability.
Robust Domestic Performance
India’s real GDP grew by 8.2% in FY24, marking a significant achievement with over 7% growth for the third consecutive year. The Gross Value Added (GVA) at 2011-12 prices grew by 7.2% in FY24, driven by strong consumption demand and improving investment demand. Notably, net taxes at constant prices grew by 19.1% in FY24.
Public spending on infrastructure played a pivotal role in boosting demand for jobs and industrial output. Efforts to improve tax compliance, procedural reforms, expenditure restraint, and increased digitization were crucial in maintaining fiscal balances. Despite global challenges and supply chain disruptions, domestic inflationary pressures were effectively managed through policy responses. The trade deficit in FY24 was lower than in FY23, with a current account surplus in the last quarter of the financial year.
The focus on infrastructure has created a multiplier effect, stimulating various sectors and creating employment opportunities. The government’s proactive measures in maintaining fiscal discipline have ensured that the growth trajectory remains sustainable. This approach has also helped in managing inflationary pressures, ensuring that the economic environment remains conducive to growth.
Inclusive Growth and Employment
The Economic Survey highlights that growth in the Indian economy has been inclusive, leading to a reduction in unemployment and multi-dimensional poverty. There has been an increase in labor force participation, further contributing to economic stability and growth. The reduction in multi-dimensional poverty underscores the effectiveness of targeted relief measures and social welfare programs initiated by the government.
Inclusive growth remains a cornerstone of India’s economic policy, ensuring that the benefits of economic growth are widely shared. This approach not only improves the quality of life for the population but also strengthens the overall economic fabric by increasing consumer demand and fostering a more robust domestic market.
Positive Outlook and Future Challenges
The outlook for the Indian economy remains optimistic, with expectations of continued robust growth in FY25 and beyond. Political and policy continuity is anticipated to support economic stability and growth. Public investment has driven capital formation, and the private sector is expected to sustain this momentum.
The anticipation of political and policy continuity plays a crucial role in economic forecasting. Stability in these areas ensures that the growth initiatives and reforms implemented by the government continue to yield results without significant disruptions. This stability fosters an environment conducive to long-term planning and investment.
India’s foreign exchange reserves provide a buffer against external shocks, and the current account deficit for the year stands at approximately 0.7% of GDP. The focus on macroeconomic stability and fiscal discipline ensures a sustainable growth trajectory amidst global uncertainties.
Detailed Analysis of Key Sectors
Industrial Sector
The industrial sector has shown substantial recovery, with the Industrial GVA CQGR at 1.4% post-pandemic, compared to 1.1% pre-pandemic. This recovery is crucial as it indicates a revitalization of manufacturing and other industrial activities, which are key drivers of economic growth and employment.
Services Sector
While the services sector’s overall recovery has been slower, with GVA still catching up to pre-pandemic projections, specific sub-sectors like IT and financial services have performed well. This sector remains a significant part of India’s GDP and is expected to rebound as travel and hospitality sectors fully recover.
Agricultural Sector
The agricultural sector has remained resilient, continuing to support the rural economy. This sector’s stability is vital for ensuring food security and providing employment to a significant portion of the population.
Digital Economy
The push towards digitalization has been a game-changer. Enhanced digital infrastructure has facilitated better tax compliance, improved governance, and created new economic opportunities. Digital payments and e-commerce have seen exponential growth, contributing to the economy’s overall robustness.
Key Policy Measures and Reforms
Atmanirbhar Bharat Abhiyan
The self-reliant India campaign has focused on boosting domestic manufacturing, reducing dependence on imports, and promoting local industries. This initiative has been pivotal in driving the recovery and ensuring long-term economic resilience.
Tax Reforms
Improving tax compliance and simplifying tax procedures have been key reforms. These measures have not only increased government revenues but also made the business environment more predictable and investor-friendly.
Infrastructure Development
The government’s commitment to developing world-class infrastructure is evident from the significant public spending in this area. Infrastructure development creates jobs, boosts industrial activities, and improves the overall quality of life.
Social Welfare Programs
Targeted relief measures and social welfare programs have played a crucial role in inclusive growth. These programs have helped reduce poverty, improve health and education outcomes, and ensure that economic benefits reach the most vulnerable sections of society.
Challenges and Mitigation Strategies
Geopolitical Risks
The global geopolitical landscape remains volatile, impacting trade and investment flows. India’s strategy involves diversifying trade partners and strengthening regional cooperation to mitigate these risks.
Inflation Management
While domestic inflation has been managed effectively, global price fluctuations, particularly in oil and commodities, pose challenges. The government continues to monitor these trends and implement measures to cushion the impact on the domestic economy.
Climate Change and Sustainability
India is committed to sustainable growth. The focus on renewable energy, afforestation, and sustainable agriculture practices is part of the broader strategy