According to a recent article in the central bank’s March Bulletin, India has the potential to maintain an 8% annual GDP growth rate. This positive macroeconomic environment could serve as a springboard for the country’s economic acceleration.
From 2021 to 2024, India’s GDP growth has consistently exceeded 8%. However, the global economy appears to be slowing down, with even the most robust economies experiencing a slowdown. This observation was made by a team led by RBI Deputy Governor Michael Debabrata Patra.
India’s real GDP growth reached a peak in the last quarter of 2023-24, driven by strong momentum, substantial indirect taxes, and reduced subsidies. The visible structural demand and improved corporate and bank balance sheets are expected to drive growth in the future. The article also mentions that the world is currently facing significant changes in structure and sentiments.
The future is filled with uncertainties, heightened by geopolitical risks, extreme weather conditions, and divisive forces. In contrast, the Indian economy is in a favourable macroeconomic situation that could boost its growth trajectory. The authors believe that the growth rate of over 8% achieved between 2021-24 can be maintained and even improved upon.
India’s current account deficit is small, and it has strong external buffers. Fiscal consolidation has been ongoing for three consecutive years, and companies are reducing their debt and improving their ability to service it.
Financial markets are currently reflecting positive developments
The article states that the financial sector’s balance sheets are healthy, which will facilitate the productive credit needs of a recovering economy. Financial markets are reflecting these positive developments, and capital inflows have resumed strongly as investors regain interest in India.
The authors believe that technology presents new growth opportunities that can be captured by becoming more competitive and efficient. They suggest that now is the time to develop world-class infrastructure, strong manufacturing bases, a skilled labour force, and global leadership in services to leverage these favourable factors into opportunities and strengths in the coming decades.
The article also mentions that the total demand in the third quarter of 2023-24 was driven by investment, with signs of a revival in private capital expenditure. Several sectors have reached a point where new investments are necessary.
The current financial year is expected to see the construction of the longest ever four-lane roads and the longest ever speed or access-controlled highways, aiming to create a world-class road network by 2037. The article also notes that the demand outlook for premium consumer businesses is strong and is expected to continue in the medium term.
This suggests that there are significant shifts in per capita income underway. Small-town opportunities are leading to business growth across lifestyle segments, with companies that entered these markets reaping the benefits of being early entrants.
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