How Indian Economic Resilience Navigate Global Challenges and Pave a Promising Future?

In the grand stage of global economics, India takes charge as the protagonist, or we can reminisce about the Soldier in the ‘Seven Ages of Man’ monologue from Shakespeare's epic play As You Like It.

Just like one of the stages in the poem, the Soldier exemplifies the Indian economy as a dynamic and fearless force - driven by the aspirations of its people and ready to face any challenge. It strives to enhance its global stature and embraces opportunities even in the cannon’s mouth.

The latest data released by the Indian government reveals a remarkable surge in the Gross Domestic Product (GDP) during the June quarter, recording its fastest pace of growth in a year. With an astounding 7.8% expansion on an annual basis, India is not only surpassing expectations but also outpacing many of its regional peers.

Join us as we delve into economic evaluation and evolution while exploring the pathways that promise a brighter future.

Growth Forecast: A Silver Lining Amidst Global Challenges

Amidst weak global demand and tightening monetary policies worldwide, India's economic outlook remains upbeat.?

The Indian economy has bounced back with soundness, showcasing a stark contrast to the challenging times it faced in recent years. The 7.8% growth in Q1FY23-24 reflects a synergy of positive factors. A substantial surge in government capital expenditure, robust services momentum, improved consumption, and a favourable base have all contributed to this resurgence.?

The economy seems to have harnessed its inner strength and resilience, even as global forces remain weak. Several key factors contribute to this positive outlook:

1. Service Sector: On the supply side, the services sector has emerged as the undisputed champion, consistently outpacing industrial performance. High-demand contact-intensive activities, coupled with growth in finance and real estate services, have been instrumental in this achievement.?
2. Private Consumption Resurgence: A rebound in private consumption has injected vigour into production activities. Near-universal vaccination coverage has enabled people to engage in contact-based services, revitalising sectors such as restaurants, hotels, and cinemas.
3. Capital Expenditure Surge: Higher Capital Expenditure (Capex) has significantly bolstered the economy, crowding in private Capex and fostering manufacturing and investment activities.
4. Banking Sector Strength: Public sector banks are helping drive economic growth by providing credit to MSMEs. The sector has seen high growth rates, supported by government schemes. MSMEs are recovering well, and the ECLGS (Emergency Credit Linked Guarantee Scheme) is easing their debt concerns.
5. Government Initiatives: Key government initiatives like PM GatiShakti, the National Logistics Policy, and Production-Linked Incentive schemes further stimulate manufacturing output.

Indian Economic Edge in the Face of Global Challenges

Q1FY23-24 might likely mark the peak in the near-term growth trajectory due to economic promptness:

1. Pandemic Response: The rapid recovery from the pandemic and the successful vaccination drive have bolstered economic resilience. Private consumption and capital formation have surged, contributing to employment growth.
2. Geopolitical Strife Impact: Geopolitical strife in Europe has posed challenges, leading to revisions in growth forecasts. Nevertheless, the growth estimate for FY23 remains higher than most major economies.
3. CAD and External Pressures: Elevated global commodity prices have widened the Current Account Deficit (CAD). The depreciating rupee remains a concern, with potential impacts from further policy rate hikes by the US Federal Reserve.

Subsequent quarterly figures are expected to taper off gradually, primarily due to several factors. These include the lagged impact of past monetary tightening, global slowdown spillovers, uncertainties related to monsoon performance, and waning pent-up demand.

With over half of India's populace residing in the Indo-Gangetic Plain, it confronts escalating, severe heat waves attributed to climate change. These climatic shifts lead to an alarming annual toll with a reduction between 2.5% and 4.5% of GDP. This is because of detrimental consequences such as reduced labour productivity, diminished wheat yields, increased livestock casualties, and electricity disruptions.

While commendable strides have been made, substantial gender disparities are also under the radar. India has been crafting policies to integrate gender considerations and tailored benchmarks. Meanwhile, schemes like the Maternity Benefit Act and Prevention of Sexual Harassment at Workplace Act bolstering childcare support, vocational training, and lifelong learning opportunities for working women represent a significant stride.?

Outlook for 2023-24: Strengthening Economic Landscape

2023-24 and ahead, the recovery from the pandemic is set to continue, driven by robust domestic demand and increased capital investment. Government support and structural reforms, including the Goods and Services Tax and Insolvency and Bankruptcy Code, enhance efficiency and transparency.

The growth is genuinely inclusive when it creates jobs and benefits all segments of society. The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and other initiatives have provided employment opportunities and improved rural welfare indicators.

India, like the rest of the world, faces an extraordinary set of global challenges, including the pandemic's aftermath, geopolitical conflicts, and supply chain disruptions. As a result, India's ability to withstand these challenges showcases its remarkable economic resilience.

Final Thoughts

Economists and analysts unanimously applaud India's exceptional Q1FY23-24 performance. Forecasts suggest a moderation in GDP growth to around 6.0%, with some mild upside potential. However, there are nuanced observations to be made. While services thrive, the manufacturing sector, despite a Y/Y growth of 4.7%, fell short of expectations.?

This outlook accounts for the complexities of the global economic landscape and domestic factors, highlighting the need for a balanced perspective.

ViTWO reinforces the fact that sustainable development also hinges on advancing gender equality across various facets, including healthcare access, education, and financial resources. Additionally, fortified enforcement of women's land rights enhances their economic standing, enabling them to leverage these assets as collateral for investments in climate resilience. The convergence of these efforts will drive positive transformations on climate, gender and economic fronts.