The Federation of Indian Chambers of Commerce and Industry (FICCI) recently unveiled its latest Economic Outlook Survey, providing insights into the anticipated growth of India’s economy in the upcoming fiscal year, FY24. The survey, conducted in September 2023, brings together eminent economists from the banking, financial services, and industry sectors to provide a comprehensive analysis of the economic landscape.
Positive Contributors to Growth
The survey’s central projection foresees a 6.3% growth in the Indian economy for FY24. This projection hinges on several key factors:
1. Strong Financial Sector
India’s robust financial sector is expected to be a key driver of economic growth. As the sector continues to evolve and adapt to changing global dynamics, it is poised to provide critical support for the country’s economic expansion.
2. Urban Demand
Strong urban demand is another driving force behind the anticipated growth. As cities continue to develop and urbanization increases, consumer spending is expected to rise, further stimulating economic activity.
3. Private Investment
The survey underlines the importance of private investment, which is expected to surge due to the government’s front-loading of capital expenditures. This government strategy has incentivized private enterprises to invest in various sectors, contributing significantly to economic growth.
4. Real Estate Recovery
The real estate market is projected to pick up, indicating positive signs of recovery. This sector, which has faced challenges in recent years, is expected to play a pivotal role in boosting the economy.
5. Festival Season
The festival season is also anticipated to stimulate economic growth. Festive occasions often lead to increased consumer spending, which, in turn, fuels economic expansion.
Moderation in GDP Growth
While the survey’s central forecast is promising, it also predicts a moderation in GDP growth. After recording a growth rate of 7.2% in 2022-23, the expected 6.3% growth for 2023-24 signifies a slight deceleration in the pace of economic expansion.
The survey highlights several external factors that could pose challenges to India’s economic growth in the coming year:
1. Geopolitical Tensions
Ongoing geopolitical tensions in various regions can have far-reaching impacts on India’s economic stability and growth prospects. FICCI’s survey acknowledges the need to navigate these complex international relations carefully.
2. China’s Economic Slowdown
The slowing economic development in China, a significant trading partner for India, is another factor that requires close monitoring. Economic developments in China can influence India’s economic fortunes.
3. Monetary Tightening
The delayed effects of monetary tightening, implemented to control inflation and stabilize the financial system, might affect India’s economic trajectory in FY24.
4. Monsoon Variability
India’s agricultural sector is particularly vulnerable to variations in the monsoon season. The survey warns that a below-average monsoon could have adverse effects on the growth of agricultural and related industries.
The survey provides sector-specific growth forecasts:
Agriculture: Growth in the agricultural sector is predicted to decrease from 4% in FY23 to 2.7% in the current fiscal year due to the influence of El Niño on monsoon rainfall.
Industry: The industry sector is expected to grow at a rate of 5.6%, reflecting its importance in India’s economic landscape.
Services: The services sector is anticipated to exhibit robust growth at 7.3%, underlining its role as a key contributor to India’s economic expansion.
The direction of inflation remains uncertain. The survey suggests that Consumer Price Index (CPI)-based inflation is expected to hover around 5.5% in FY24, with a range of 5.3% to 5.7%. Factors contributing to inflationary pressures include the stickiness of cereal prices, fluctuations in agricultural commodities, and disruptions in global supply chains.
Inflation Risks and Volatility in Prices
The survey emphasizes that while the CPI inflation rate may have peaked, upside risks to prices persist. Volatility in food prices due to weather-related uncertainties, international events like the cancellation of the Black Sea grain deal, and spikes in crude oil prices all have the potential to contribute to inflationary pressures.
One of the survey’s key findings is the positive impact of the government’s emphasis on capital spending. This strategy has triggered a surge in private investments and has supported the momentum of expansion in the economy. However, the survey cautions that it may take some time for investments to gain full momentum, and further rebounds in private investments will be influenced by both domestic and international consumption activities.