IMF DATA

IMF’s World Economic Outlook for April paints a cautious picture of the global economy. Here are the key points from their assessment:

1. Global Growth Rate: The world economy is anticipated to maintain a growth rate of 3.2% in both 2024 and 2025, unchanged from 2023.
2. Developed Economies: There’s a slight uptick in growth expected for developed economies, from 1.6% in 2023 to 1.7% in 2024 and further to 1.8% in 2025.
3. Emerging Economies: Conversely, emerging economies might experience a slight slowdown, with growth rates projected to decrease from 4.3% in 2023 to 4.2% in 2024 on average.
4. Inflation Outlook: Global inflation is forecasted to decline from 6.8% in 2023 to 5.9% in 2024 and further to 4.5% in 2025.
5. Inflation Disparities: Advanced market economies are expected to achieve their inflation targets sooner than emerging market economies. This could lead to policy rate adjustments, impacting financial flows between different economies.

INDIA’S PERFORMANCE

India’s economic performance stands out positively amidst the challenges highlighted by the IMF’s World Economic Outlook. Here are the key points regarding India’s growth:

1. Impressive Growth: India’s GDP growth for 2023-24 is estimated at 7.6%, potentially nearing 8% according to the Chief Economic Adviser. The growth has been consistent, with the first three quarters averaging at a remarkable 8.2%.
2. Resilience to Shocks: Despite adverse global and domestic environments, India has demonstrated resilience. Factors such as deficient rainfall, oil price volatility, international capital flows, and global conflicts have not severely impacted the economy as in the past.
3. Immunity and Stability: India seems to have acquired a certain degree of immunity to economic shocks. This is attributed to a combination of factors including political stability, policy certainty, and continuity, which contribute to economic stability and a favorable investment climate.

Overall, India’s creditable growth performance and ability to navigate challenges reflect its resilience and stability in the face of global economic uncertainties.

FORECAST AND CHALLENGES

The economic forecasts for India in 2024-25 are indeed optimistic, as indicated by various multilateral agencies and credit rating firms:

1. Monetary Policy Committee (RBI): Projects a growth rate of 7% for the Indian economy.
2. World Bank: Forecasts growth at a slightly higher rate of 7.5% during the calendar year 2024.
3. IMF and ADB: Provide growth forecasts of 6.8% and 7.1%, respectively, aligning closely with the RBI’s projection.

The anticipation of election-related spending is expected to sustain demand for private consumption in the initial quarter of the fiscal year. Additionally, the continuity of high public investment, especially in capital expenditures, is likely to stimulate private investment as well, supporting overall demand.

However, challenges persist, particularly related to the stagnancy in advanced economies. External demand from net exports remains subdued, necessitating structural changes that might not materialize in the medium term. Despite these challenges, the overall economic outlook for India remains positive, buoyed by strong domestic demand and investment momentum.

ECONOMIC INDICATORS FOR FY25 IN INDIA

The economic indicators for FY25 in India are promising, especially in key sectors like manufacturing, services, and agriculture:

1. Manufacturing Sector: The Purchasing Manager’s Index (PMI) for manufacturing reached a 16-year high of 59.1 in April, indicating robust growth and positive sentiment within the sector.
2. Services Sector: Although the PMI for services showed a slight decline from 61.2 in March to 60.8 in April, it remains at a high level, reflecting ongoing strength and stability in the services industry.
3. Agricultural Sector: A normal monsoon forecast for 2024-25 suggests a potential revival in the agricultural sector following a disappointing performance in the previous year (2023-24).

Given these positive trends, there are no immediate indications of an economic slowdown. Furthermore, with market expectations favoring the ruling party’s return to power, continuity in policies and economic reforms is likely, which could further support the momentum in various sectors of the economy.

FISCAL TARGETS AND CHALLENGES

The upcoming Union budget, to be presented post-election, will need to strike a delicate balance between increasing capital investment and achieving fiscal consolidation. Here are some key points regarding the fiscal targets and challenges:

1. Fiscal Deficit Targets: Finance Minister Nirmala Sitharaman aims to reduce the fiscal deficit of the Union government to 4.5% of GDP by 2025-26. The interim budget for 2024-25 set the fiscal deficit target at 5.1% of GDP.
2. Capital Expenditure: The interim budget also outlined a capital expenditure-to-GDP ratio of 3.4%. However, implementing promises from the election manifesto could put pressure on this target.
3. Balancing Act: The final budget will need to navigate between maintaining the fiscal deficit estimate while ensuring sufficient capital expenditure to support economic growth and development initiatives.
4. Election Manifesto Promises: Fulfilling commitments made in the election manifesto may require additional spending, potentially impacting the allocation for capital expenditure.
5. Long-term Fiscal Sustainability: Achieving fiscal consolidation is crucial for long-term fiscal sustainability and maintaining investor confidence.

BUOYANT GST COLLECTION AND FISCAL MANAGEMENT

High Buoyancy in GST Collection

• April collections reached a record Rs. 2.1 lakh crore.
• Represents a 12.4% increase compared to the previous year.

Fiscal Cushion and Management

• Buoyancy expected to persist, aiding fiscal management.
• Crucial for fiscal consolidation amidst compressed borrowing space.

ECONOMIC OUTLOOK AND CHALLENGES AHEAD

Promising Outlook for 2024-25

• Expectation of high growth rates in the upcoming fiscal year.

Employment Challenges

• The challenge of creating employment opportunities for millions entering the workforce annually.
• Addressing low-income jobs in the agricultural and informal sectors.

LONG-TERM ECONOMIC ASPIRATIONS

Path to Becoming the Third-Largest Economy

• India’s trajectory towards becoming the third-largest economy.

Long-term Goal: Developed Country by 2047

• Aspirational goal of becoming a developed country by 2047.
• Accelerated growth target of 9.5% annually for the next 25 years.
• Emphasis on significant structural reforms to achieve long-term objectives