Crystal-gazing Indian Economy in 2024
Dear Readers,
Happy New Year
How did you welcome the first sunrise of 2024? Do you find sunrise on the first day of the New Year always special? I could see many images from different parts of the world on social media. What I remember is that India built a sun temple hundreds of years ago, exactly at the point where the first ray of the sun falls. It is known as Konark Temple in Odisha. Its image is on the currency note of Rs 10 too. Well, I hope the sunrise of 2024 brings joy and cools our warming Earth.
While we are settling down in the New Year, a news that caught my attention. It was about the dedication and resilience of a delivery personnel of Zomato. Due to the truckers’ strike he couldn't refuel his bike and rode a horse for delivery. Imagine the youth clad in red uniform carrying a square box on his back with a galloping horse amidst the traffic in Hyderabad. The news was also being captured by international media. I think such moments bring smiles to our faces.
Indian economy in 2024
India will rise. That’s largely the prediction of all the leading financial institutions, economists and analysts. The market is becoming optimistic day by day. But the larger story is driven by the consumption drive fuelled by infrastructure spending. The government’s largest investments are in infrastructure; in every city there are several projects either in progress or about to launch. India is now in the preferred list of global investors.
Quickly, let's just scroll over how we came here. 2023 was a unique year where stock markets soared, with both domestic and foreign investors investing in a symphony. The GST (goods and services tax) collections grew significantly and banks’ balance sheets became stronger. From pause to pivot, the Reserve Bank of India’s policies made a big difference. The central bank raised policy rates five times by 225 bps in 2022, but in 2023 it hiked only once by 25 bps. And the RBI even continued to maintain the stance of withdrawing accommodation last year. We didn’t manage to produce as many Unicorns as we did earlier, but we got 57 companies listed with bumper openings.
Themes for 2024
I am sure you must have read many reports on the 2024 outlook. I just want to stress on only three things which I think will be an integral part of the New Year.
1. AI.
The adoption of Artificial Intelligence (AI) by the firms is not a question, but the level of maturity that firms will build in the coming year will be the key. My hope is, specifically this year a lot of finance companies will achieve scale with AI. With many user case studies, the usage of AI is going to be a daily phenomenon. Of course, on the other hand, AI accuracy will be a challenge but for mass and generic usage AI will be the go-to tool.
2. Election and Geopolitical Tensions
Though they are slightly different things, there is a greater resemblance in the decision making. The war in Ukraine was still on when a fresh one in Gaza began. The impact of the wars on the global supply chain is strongly visible. The worry is geopolitical tensions will continue. On the other hand, elections will be a major focal point in the world this year. As many as 64 countries are going for elections including India and the US. The campaigns will grab more attention than the real issues, which is certainly not encouraging for the economies.
3. Green Promise
The world paid attention to climate change in 2023. Several countries including India promised to go carbon-neutral. But net zero is not easy, policymakers have also crafted various rules but we need a larger participation. Financial institutions have begun raising green bonds and increased credit scoring points for companies following green rules.
2024 should be the year of implementing those policies and lowering the temperature which is making the world hotter day by day.
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India: What Next?
JP Morgan Chase, World Bank, International Monetary Fund and India Ratings have already predicted strong growth for India. The majority of the high-frequency economic indicators are positive and if the ruling party returns to power with a thumping majority it will boost confidence for the next five years. On the other hand, the RBI’s fight to bring down inflation into the target range will continue. The worry is the private capex cycle has not picked up despite the central bank holding rates for the last eight months. There are three factors I think we need to watch carefully.
One, while we are hopeful of Bharat as a growth story, in reality the FMCG and retail sales in rural India have slowed down. Is it low spending power or low earnings, needs to be evaluated. The unemployment situation has also not improved. Second, manufacturing and exports still need a push, despite greater support of production-led incentive schemes. Third, this year, foreign direct investment also did not pick up much.
We at ETBFSI have filed a few stories on how 2024 would look for the BFSI sector. I am sharing a few links here. Trust you will find them meaningful.
Happy Reading,
Amol Dethe
Editor
ETBFSI