As per the India Meteorological Department, the southwest monsoon this year is “most likely to be above normal”.
Last year, the Indian economy fared better than expected. The National Statistical Office’s second advance estimates have pegged growth for the full year at 7.6 per cent. As per the International Monetary Fund’s Regional Economic Outlook report, India has been a “source of repeated positive growth surprises”. There are expectations of the growth momentum continuing this year as well. In its most recent World Economic Outlook, the IMF has upped its growth projections for the country. The Fund now expects the Indian economy to grow at 6.8 per cent in 2024-25, up from its earlier projection of 6.5 per cent. The Reserve Bank of India is more optimistic. In the last monetary policy committee meeting, the central bank had projected growth at 7 per cent. The Asian Development Bank has also upped its estimate of growth this year to 7 per cent. The World Bank has pegged the economy to grow at a marginally lower rate of 6.6 per cent in its recent South Asia Development update. Rating agency Crisil expects growth at 6.8 per cent, while ICRA is less optimistic at around 6.5 per cent. This range of GDP growth estimates from 6.5 to 7 per cent does suggest that the Indian economy is likely to remain the fastest growing large economy in the world.
There are several reasons to be optimistic about the country’s growth prospects. As per the India Meteorological Department, the southwest monsoon this year is “most likely to be above normal”. There is a 60 per cent chance of La Nina conditions developing by June-August as per the most recent update from the US National Oceanic and Atmospheric Administration. A good monsoon would bode well for food production, and, as a consequence, possibly provide a fillip to rural demand. There are also expectations of a firm pickup in private investment activity as capacity utilisation rates rise. Both bank and corporate balance sheets are healthy — bank non-performing loans fell to 3.2 per cent in September 2023, while the corporate debt-to-equity ratio has fallen from 1.16 in 2014-15 to 0.85 in 2022-23 as per a report from Nomura. However, there is a possibility of government capex slowing down in the first few months of the year due to the elections. On the trade front, while the IMF does expect world trade volume in both goods and services to pick up, uneven global growth and geopolitical conflicts do create uncertainty.
There are, however, several sources of concern. As per the IMF, growth in the global workforce will be driven by India and sub-Saharan Africa, with these regions accounting for “nearly two in every three entrants over the medium term”. Creating more productive forms of employment opportunities for the millions entering the labour force each year should be a top priority for the next government. Alongside, it must also commit to the path of fiscal consolidation and bring down its debt.
