India To Remain The Standout Economic Story Of 2024
India is poised to stand out as an attractive investment destination with its stability and optimism for growth with brighter prospects in a turbulent world. The year 2024 will mark the coming-of-age of India’s stand out economic growth story and its contribution to global economic growth. To understand the relative importance of India’s growth contribution, let us look at IMF’s global growth forecasts. Global 5-year-ahead growth projections from the IMF WEO have declined from a peak of 4.9 per cent in the April 2008 WEO for growth in 2013 to 3 per cent in the April 2023 WEO for growth in 2028: the lowest projection since 1990! There is no doubt now that the global economy has continuously and consistently moved to a much lower growth plane over the decades.
In contrast, the IMF projects the Indian economy to sustain a real growth rate of 6.5 per cent over the next 5 years. If the above forecasts do indeed come true, India will remain the fastest growing economy of its size for over two-thirds of the time since 2014 IMF forecasts. Note, when India was growing at 8 per cent plus in FY2004-2008, its contribution to global growth was far lower at 9.6 per cent as the size of the economy was smaller. Moreover, China’s contribution that stood at 26 per cent during the period will rise a tad to ~28 per cent while that of India has jumped to 16 per cent.
However, we need to navigate the year 2024 that has begun with supply chain jitters resurfacing in the backdrop of two continuing hot wars. Repeated attacks in the Red Sea by Houthis have led to shipping disruption with volumes falling 28 per cent YoY over the last 10-12 days as ships avoid the Suez Canal, raising the cost of shipping as they have also been hampered by problems at the Panama Canal due to low water levels. The following factors will also need watching in 2024:
Fed ‘’earlier and faster’’? The Fed that kept reiterating ‘’higher for longer’’ in 2023 could begin cutting interest rates earlier than previously expected after it made a dovish pivot during its last meeting of the year. Some now expect the Fed to trim the benchmark rate by as much as 75 bps between just Mar & Jun 2024. The Fed funds futures now point to 6-8 rate cuts next year. This could impart downward bias to the USD and have an upward momentum to the commodity basket prices.
Sino-American growth rates: The global external demand environment remains very feeble and world trade growth remains at historic lows, with few signs of improvement. However, any hard landing in the US and sub-par China growth outturn can have implications for the global economic and trade cycles.
Oil rebound? With a decisive Fed pivot, oil prices could reverse their decline other things remain same. The Opec+ leaders will review production targets early this year and the grouping will want to defend the prices going forward. They could do that by leveraging their pricing power and making sure that the supply deficit is maintained via the extension of supply cuts. However, a softer global demand could act as a ceiling.
Super Bowl Of Democracies
A record number of countries, corresponding to nearly half of the world’s population and a sizeable portion of global GDP, are due to hold their respective elections in 2024. The outcomes in some of them could determine the course of the year. The first one will be Taiwan in Jan where the contest between pro & anti-China parties will be eyed. The two largest democracies ie India (May-June) and the US (Nov) will also undergo the ballot test of ballot.
Monetary and fiscal coordination in India: Back home in India, the monetary-fiscal tango needs to continue unabated. The RBI, under the able stewardship of Governor Das, and the Finmin have acted in tandem and astutely addressed the persistent inflation threats and the elevated global risks unlike
in the US and other parts of the world. The central government seems to be on track to achieving the fiscal deficit target of 5.9 per cent of GDP in FY24 and will do well to reiterate its intent on staying the course on fiscal consolidation in the medium term. India’s relative global standing has been bolstered by its economic resilience as well as its macro and financial stability and needs to be guarded at all costs to ensure the growth momentum and retain India’s standing as a positive outlier in a growth-challenged world.
The author is Group Chief Economist, L&T
