India remains fastest-growing major economy amid global economic recovery

India’s growth story: India remains the fastest-growing major economy, with international organisations and the Reserve Bank of India (RBI) offering positive assessments of its growth outlook for the current financial year, according to the March 2024 edition of the Monthly Economic Review released by the Department of Economic Affairs. 

Reflecting this sentiment, the International Monetary Fund (IMF) has revised its estimate of India's real GDP growth for FY2023-24 upwards to 7.8 per cent. This marks an increase from 6.7 per cent in its January 2024 update and 6.3 per cent in its October 2023 World Economic Outlook (WEO).

Despite variations in global economic recovery and ongoing geopolitical tensions, the nation’s economy has shown strong resilience, indicating continued growth across sectors and reinforcing its role in the global economy.

In March 2024, India's economic outlook witnessed record-breaking stock market performance, notable GST collections, and strong growth in both the manufacturing and services sectors. 

India’s performance amid global inflation 

Inflationary pressures also seem to have been contained in major global economies with inflation in recent months being lower than anticipated (countries including Eurozone, China, and Mexico). However, a slight uptick was registered in March 2024, with inflation rising stronger than anticipated in the USA, the UK, Indonesia, and South Africa. 

On the other hand, India's measures, including policy adjustments and strategic food buffer strengthening, effectively manage inflationary pressures in the country. 

Image credit: Department of Economic Affairs

In FY2023-24, retail inflation in India experienced a notable decrease, reaching its lowest level since the onset of the COVID-19 pandemic. Consequently, with ongoing moderation in price pressures, the Reserve Bank of India's Monetary Policy Committee (MPC) opted to maintain policy rates unchanged, emphasizing the necessity of achieving sustained alignment of inflation with its target of 4 per cent.

Considering various factors such as geopolitical tensions, potential adverse domestic weather conditions, and the Indian Meteorological Department's forecast of an above-normal monsoon for the current year, the RBI has projected CPI inflation for FY2024-25 at 4.5 per cent.

Narrowing trade deficit

While global trade faces slowdowns, India anticipates a narrowing trade deficit in the coming years, supported by schemes like the Production-Linked Incentive (PLI) and strategic trade agreements such as the India-EFTA Trade and Economic Partnership Agreement (TEPA).

Image credit: Department of Economic Affairs

In 2023, global trade faced contraction due to reduced demand in developed nations, trade vulnerabilities, and a decline in global commodity prices. The slowdown influenced India's merchandise exports and imports, leading to a moderation in both.

As a result of the global trade slowdown, India's merchandise trade deficit narrowed in FY2023-24, with exports experiencing a lesser decline than imports. The non-petroleum and non-gems & jewellery merchandise exports showed resilience, with a sustained uptick and growing by 3 per cent during the fiscal year.

The services exports expanded further in FY2023-24, driven by increasing software exports and business services exports. These positive trends contributed to an improvement in India's current account deficit during the first nine months of FY2023-24 compared to the same period in the previous year.

Strong FPI inflows

In FY2023-24, the nation witnessed experienced a strong turnaround in foreign portfolio investment (FPI) flows. Supported by buoyant economic growth, a conducive business environment, and strong macroeconomic fundamentals, the country witnessed robust FPI inflows. 

Image credit: Department of Economic Affairs

The market recorded net FPI inflows worth $41 billion during the fiscal year, a stark contrast to net outflows observed in the last two years. The level of inflow marks the second-highest recorded after FY2014-15. 

India attracted the highest equity inflows among its emerging market counterparts in FY2023-24. The inclusion of India's sovereign bonds in global bond indices is expected to stimulate demand for exposure to the country further.