2024 & Ahead: Indian Economic Outlook
In 2024, India stands at the crossroads of significant transformation, both domestically and on the global stage. The achievements of the previous year underscore the nation’s prowess in areas ranging from space exploration to digital infrastructure development, solidifying its leadership position globally. As we approach the upcoming national elections, the anticipation of heightened social media activity and political discourse is inevitable.
The intersection of the elections with the nation’s economic outlook emphasises the critical importance of policy consistency and sustained socio-economic growth. The post-election period is expected to usher in key reforms in labour, land, agriculture, and energy policies. The speed and cohesiveness with which these reforms unfold could be pivotal, shaping India’s economic trajectory for the next five years. A consistent policy approach is vital for providing a stable environment for businesses and investors, fostering confidence and sustained growth.
Structurally, India appears well-positioned to maintain its status as the world’s fastest-growing economy, but this trajectory requires careful policy navigation to avoid potential setbacks. The economy’s resilience is evident, yet challenges persist, particularly in areas like food inflation and rural sector growth. A surge in government spending post-elections, coupled with geopolitical uncertainties subsiding, sets the stage for a robust economic expansion in 2024. However, vigilance is needed, especially regarding the impact of global oil prices and the nuances of geopolitical narratives and global protectionism.
Furthermore, scaling up socio-economic improvements is imperative to address persistent challenges, including inequalities, unemployment, and rural development. A cohesive and forward-looking strategy, guided by the election outcomes, is vital to ensure that the positive socio-economic trends witnessed in recent years are not only sustained but expanded upon, fostering inclusive growth and long-term economic resilience.
Despite persistent challenges posed by food and oil supply shocks, projections indicate that economic growth will sustain stability and resilience. In response to a deficient monsoon causing spikes in food inflation last year, the government implemented measures to mitigate the impact of supply shocks, including the suspension of rice exports and extensions of subsidies on cooking gas and food. However, unless substantial positive changes occur in the supply chain, the expectation is that food inflation will persist at elevated levels in the first half of 2024. This, in turn, influences the central bank's perspective on repo rates. While maintaining a firm grip on interest rates may prove beneficial for long-term economic growth, it concurrently keeps credit costs elevated, posing challenges for companies in raising capital. The potential conclusion of the rate cycle adds an intriguing dimension, as it could unlock opportunities for increased investments.
Moreover, the impact of global oil prices assumes significance, with fluctuations in the energy market influencing operational costs and economic stability. Geopolitical narratives and global protectionism also cast their shadows, contributing to the complex landscape that India Inc navigates.
Anticipated is a revival in rural consumption propelled by the positive trajectory of real rural wages. This resurgence is further fortified by a noteworthy double-digit growth in public sector capital expenditure, stemming from both central and state government investments. The synergistic effect of robust public sector spending, coupled with an anticipated upswing in private investment, positions these factors as integral building blocks in India's growth narrative for the year 2024.
In the upcoming year, a pivotal development poised to shape the fiscal relations between the Centre and states for the next five years, starting from 2026, is the anticipated initiation of consultations by the Sixteenth Finance Commission. The challenges of fiscal federalism persist in India, marking an ongoing dynamic between the central government and the diverse states. This relationship revolves around the allocation of financial resources, taxation policies, and the distribution of responsibilities. The disparities in economic capacities among states, coupled with differing regional priorities, contribute to the complexity of fiscal federalism. Striking a balance between centralised fiscal control and granting states autonomy remains a perennial challenge.
India is presently embarking on the central take-off phase of the S-curve, marking a period of accelerated urbanisation, industrialisation, rising household incomes, and heightened energy consumption. This juncture typically spans several decades, signifying a crucial stage in the country's socio-economic evolution. The implications of this phase are profound, as it signifies a transformative era where urban centers expand, industries flourish, and the economic landscape undergoes substantial shifts. The simultaneous rise in household incomes not only reflects improved living standards but also fuels increased consumer spending, contributing to overall economic growth.
As India continues its urbanisation trajectory, significant challenges loom on the socio-economic horizon. The burgeoning urbanisation presents a dual imperative – to address the pressing socio-economic issues while ensuring inclusive economic growth across diverse consumer segments. Challenges include equitable access to resources and opportunities, adequate infrastructure development to sustain urban populations, and the need for skill development programs to align the workforce with evolving urban demands. Achieving a balance in inclusive economic growth demands policies that not only spur economic activities but also address socio-economic disparities, providing avenues for marginalised communities to participate in and benefit from the urbanisation process. Striking this delicate balance is pivotal for fostering sustainable and harmonised urban development that uplifts all segments of society.
The urgent need for expanding healthcare facilities across India is underscored by the imperative to avoid another health crisis akin to the recent pandemic, which brought to light the inadequacies of the current medical system. The existing healthcare infrastructure is marred by a combination of broken systems and exorbitant costs, leaving many segments of the population vulnerable and underserved. Notably, public healthcare facilities, despite the widespread Swacch Bharat campaign, often suffer from physical neglect, evident when one ventures into government hospitals or observes the surroundings outside these institutions. Building more healthcare facilities is essential not only for addressing immediate health concerns but also for establishing a robust and accessible healthcare system that can effectively cater to the diverse healthcare needs of the population, ensuring a healthier and more resilient society.
India's imperative to build social infrastructure alongside civic infrastructure is paramount for cultivating liveable cities. While the focus on civic infrastructure is crucial for the physical well-being of urban areas, the vitality and sustainability of cities hinge equally on robust social infrastructure. This encompasses the development of schools, healthcare facilities, community centers, and cultural spaces that contribute to the overall quality of life for residents. A city's liveability is not solely determined by its physical structures but also by the social fabric that fosters education, healthcare access, community engagement, and cultural expression. Integrating social infrastructure into urban planning ensures that cities become not just functional spaces but vibrant, inclusive communities where people can thrive holistically, marking a pivotal step towards creating truly liveable urban environments in India.
India is poised at the cusp of potential geopolitical uncertainties and foreign policy challenges, coinciding with its growing stature as an economic powerhouse. This juncture may witness historic and unprecedented political changes and policy shifts aimed at addressing segments that have been historically overlooked. Notably, the economic landscape grapples with structural challenges such as a limited consuming class, a low bank credit-to-GDP ratio, and a shortage of skilled workers. The persistent issue of unemployment requires solutions that extend beyond political rhetoric and debates. Post-election, pivotal reforms in labour, land, agriculture may shape India's economic trajectory. Additionally, the quest for a sovereign rating upgrade confronts the challenge of overcoming biases from advanced economies, raising questions about the geopolitical implications of such an upgrade. The upcoming period is poised to be transformative for India, demanding strategic responses to navigate these multifaceted challenges.
