India’s economic outlook appears optimistic as the country heads into a new year, with near-term growth potentially around 6.9 per cent-7.2 per cent, according to Deloitte India’s recent economic outlook report. There is an underlying momentum that is building up in the Indian economy as seen in the improving economic fundamentals. India’s current account deficit (CAD) was 1.9 per cent of GDP in FY2023 and is expected to be further lower in FY2024, says a Deloitte India report. Foreign exchange reserves remain at a comfortable level of INR 568 billion which is equivalent to over 10 months of import cover. Current inflation stands at 5 per cent which is albeit high as per RBI’s target range, but much lower than what it used to be a decade back.
Improving economic fundamentals have buoyed the outlook and we expect India to grow between 6.9 per cent and 7.2 per cent over FY2023–24 in our baseline scenario, followed by 6.4 per cent and 6.7 per cent over the next year. And, while the global economic scenario remains modest and will impact the Indian economy, the country will be able to navigate uncertainties better than the rest of the world, according to Rumki Majumdar, Economist, Deloitte India. However, the persisting inflation which recently moved back up to 5.6 per cent after showing signs of easing in the previous month is a matter of concern. High inflation is expected to persist till H2 FY2024 due to high food and volatile oil prices and soften thereafter, as per Majumdar.
As per a CXO survey by Deloitte India, business leaders anticipate strong economic growth for the next fiscal year. About 50 per cent of India Inc. reflects optimism about India posting above 6.5 percent growth in FY2025. Amongst industry sectors, automotive (50 per cent), consumers and retail (66 per cent), technology, media, and telecommunication (47 per cent) and energy, resources and industrials (44 per cent) anticipate high growth. Government initiatives, increased trade collaborations, lowering of logistics cost, and policies to increase industrial production (such as intelligent automation in manufacturing and increased investment towards sustainable technologies), will further this momentum. Changing consumer preferences and strong demand in tier-2 and tier-3 cities are other factors aiding this outlook.
In the last decade, India has seen innovative solutions from technology-led know-how transforming India’s economic and social landscape. Be it the UPI, account aggregator networks, online e-filing platforms, and FASTag, amongst many more, all these innovations have been pivotal in greater financial inclusion and improved efficiencies. For instance, FASTag increased toll revenues 9.2 times to INR 413 billion in FY2023 and cut waiting times and energy use dramatically. E-filing and ITR-1 Sahaj boosted income tax filers from 38 million in FY14 to 77.8 million in FY23. The JAM Trinity enhanced banking penetration from 25 per cent to 80 per cent, with 56 per cent of accounts held by women. Digitisation in capital markets resulted in an annual average benefit of INR 35 billion, and mutual fund investors grew from 9.6 million in March 2014 to 41 million in October 2023.
Sanjay Kumar, Partner, Deloitte Touche Tohmatsu India LLP notes that the vision for a digitally empowered India becomes increasingly tangible. “Our survey findings reinforce the importance of innovation and collaboration in pursuing economic excellence, aligning with our national goal of a USD 5 trillion economy. Together, through strategic technological advancements, we are poised to elevate the ease of doing business in the country and leave an indelible mark on the global stage,” says Kumar,
At the same time, India is advancing in niche manufacturing and infrastructure development to create jobs and reduce import dependence. The country’s focus on sectors with a competitive edge is evident through initiatives like the PLI scheme, tax incentives, and logistics reforms. These efforts, emphasising high allocations for IT hardware, medical devices, and telecommunications, aim to elevate India’s position in the global manufacturing value chain and foster high-tech industry growth.
The survey projects India as poised to fortify its position as a global hub for innovation and research. Government support for initiatives emphasizes the pivotal role of R&D, such as positioning the nation as a manufacturing stronghold and advancing the semiconductor industry. As leaders anticipate significant growth in the semiconductor industry, they expect a comprehensive, long-term policy framework from the government to attract investments. About 64 percent of respondents advocate for R&D support for local companies, while 57 percent underscore the significance of an effective Intellectual Property Rights framework to foster industry growth. Such strategic measures will attract more investments to India and increase competitiveness in the high-technology manufacturing sectors.
Over the past 10 years, India has diversified its export basket and moved towards higher value–added products. As a result, the proportion of engineering goods, pharmaceuticals, and electronics goods in total exports increased, while traditional baskets’ share fell. More importantly, services exports are increasingly offsetting the merchandise deficit by 25% while non-IT services exports are also rising. Digitisation, high-end manufacturing capacity addition, and improved competitiveness through exports formed the three pillars of India’s decade-long vision and the country is witnessing the outcomes translating into sustainable growth.
However, as Majumdar points out, India will have to be more competitive and further scale up commoditised products by taking advantage of its large domestic market. It is crucial for business leaders and policymakers to leverage new and complex linkages that arise out of the country’s knowledge pool to help create a positive and sustainable impact for businesses and the economy.