Will India emerge as a global economic powerhouse in 2024?

While there is overall optimism, some economists are sounding a note of caution on the world’s fifth largest economy

An amusement park during the Mahim Fair in Mumbai. The International Monetary Fund expects India's growth to remain strong, supported by macroeconomic and financial stability. EPA

Against a backdrop of global economic volatility, coupled with food and oil supply shocks keeping inflation elevated, some may wonder whether India’s growth momentum will continue in 2024.

The country, which overtook China to become the world's most populous nation in 2023 with more than 1.4 billion people, is set to benefit from its young demographic and rising middle class incomes, economists say.

“Heading into 2024, India continues to remain in a sweet spot when it comes to its growth,” says Bhavesh Shah, managing director and head of investment banking, Equirus, an investment bank based in Mumbai.

“The growth engine powered by government’s capital expenditure push and domestic consumption remains well oiled.”

Growth forecasts from major global financial institutions are bullish.

Goldman Sachs, in its latest global economic outlook for 2024, said out of the 13 large economies it tracked, India's projected growth rate was the highest at 6.2 per cent, followed by China with a forecast of 4.8 per cent.

“Despite food and oil supply shocks keeping inflation elevated, [India's] growth is forecast to remain stable and resilient,” according to the US investment bank.

Goldman Sachs Research’s India economists Santanu Sengupta and Arjun Varma “expect consumption growth to be driven by subsidies and transfer payments”, as the government has been spending money on schemes that benefit households including food and gas subsidies.

On December 18, the International Monetary Fund said it expected India's growth “to remain strong, supported by macroeconomic and financial stability”, projecting that the country's gross domestic product will expand by 6.3 per cent in the financial year between April 2024 and March 2025.

This comes as India enjoyed strong economic growth in 2023, despite global headwinds and volatile inflation.

The latest official data shows that the country's economy expanded by a faster-than-expected 7.6 per cent on the year in the July to September quarter. Growth was increased by government spending and the manufacturing sector.

This has made the Indian economy a bright spot, as China's growth stalls, and as western countries feel the heat from high-interest rates and increasing energy costs.

“In 2023, the Indian economy performed considerably better than anticipated,” says Sujan Hajra, chief economist and executive director at Anand Rathi Shares and Stock Brokers in Mumbai.

The financial sector and industry performed well, although there have been challenges too.

“In accordance with the deceleration of worldwide demand, foreign trade in goods continued to be a weak spot,” adds Mr Hajra.

“Despite this, the current account deficit shrunk considerably due to the robust increase in services exports. India continued to receive positive net inflows of capital, and its foreign exchange reserves, which surpassed $600 billion, remained among the highest globally.”

Following a strong year, Mr Hajra is optimistic about the outlook for the Indian economy in 2024.

“We anticipate infrastructure and industry to sustain their growth momentum, while the services sector will regain its footing,” he adds.

“A modest deceleration in investment is anticipated to be offset by the resurgence of domestic private consumption demand.”

“The ongoing emphasis of the government on public investment, coupled with the implementation of welfare initiatives by the union and state governments, are anticipated to have a favourable impact on the nation's GDP growth,” he says.

Risks remain however and India cannot remain completely sheltered from global developments, he adds.

These include “prolonged geopolitical unpredictability, the probable deceleration of growth rates in developed economies, and the emergence of protectionist tendencies”, Mr Hajra says.

Economists and business leaders alike are continuing to monitor the upcoming general elections. The ruling BJP's victory in recent state elections has raised expectations that Prime Minister Narendra Modi and his party will win a third term, with the national polls expected to be held between April and May.

“Another key factor for outperformance in 2024, will be policy continuity with the assumption that the incumbent government will continue to remain in power,” says Mr Shah.

This is expected to result in continuity of policies including a focus on infrastructure spending, growing local manufacturing, and improving the ease of doing business – areas that the Narendra Modi government have been keen to bolster.

“In this scenario, we would continue to expect India to outperform not just in the run-up to the elections and beyond as well,” Mr Shah says.

Business leaders are also upbeat, particularly as the government has been strengthening international ties, with India having held the G20 presidency in 2023.

“As we look ahead to 2024, this momentum sets the stage for increased economic collaboration and growth for the Indian economy,” says Saket Gaurav, chairman and managing director at Elista, an Indian electronics and home appliances brand.

India's economic and trade ties are only set to expand, which bodes well for companies like Elista, he adds.

He is also hopeful that the brand will continue to benefit from the government's push to increase domestic manufacturing under its 'Make in India' initiative, which aims to transform the country into a global manufacturing hub.

Gaurav VK Singhvi, co-founder of We Founder Circle, a global community of angel investors, is also encouraged by the resilience that India has shown and is hopeful that the economy will fare well in the new year.

“The manufacturing sector is expected to benefit from the government’s production-linked incentive scheme, which aims to boost domestic manufacturing and exports,” says Mr Singhvi.

“The services sector, especially trade, hotel, and transport, are expected to benefit from the rebound of private consumption.”

However, one concern he highlights is the resurgence of fresh Covid cases globally. Many cases of the new Covid variant, JN1, have been detected in India.

“The factors that could slow down the economy are the global economic slowdown, the resurgence of Covid-19 cases, and a rise in oil prices,” he says.

If there are shocks and the anticipated consumer demand resurgence “does not transpire, it would significantly impair the overall process of growth”, according to Anand Rathi's Mr Hajra.

“The future economic prognosis is also somewhat uncertain in light of the forthcoming general elections,” he adds.

Although there is an overall wave of optimism about the outlook, some economists are cautious about India's economy in 2024.

“While the current growth momentum is stronger than expected, much of this seems to be driven by the government, with the private sector still missing in strength,” India economists Sonal Varma and Aurodeep Nandi said in a recent report from Japanese investment bank Nomura.

The “demand continues to lag and private capex [capital expenditure] recovery has not been broad-based”, they said.

“Because general elections approach in mid-2024, we expect the focus on public capex to wane while private firms are likely to wait until elections before committing to fresh capex plans.”

IT companies are already slowing down on hiring amid global headwinds, for example, they noted.

A likely global growth slowdown and possible “mild US recession and weak growth in the euro area … could weigh on India’s exports performance”, they warned.

Nomura is projecting that India's GDP growth will slow to 5.6 per cent in the financial year April 2024 – March 2025, compared to its forecast of an expansion of 6.7 per cent for the current financial year.

But this would still position India as the world's fastest-growing major economy, with the majority believing that the country is set to fare better than many other nations against a relatively gloomy global backdrop.