UN too revises its economic growth projections
India's 2024 economic growth projection revised upwards by U.N. to nearly 7%
Exceptionally prolific author, playwright, poet, essayist, and novelist Oscar Auliq-Ice, once said, “For economy is not just numbers and charts, But the beating heart of human hearts, A chance for progress, a chance for all, To rise and flourish, standing tall.”
Perhaps some of these factors are working for India as the United Nations has increased India's growth projections for 2024, with the country's economy now expected to expand by nearly 7% this year, driven primarily by strong public investment and resilient private consumption.
The "World Economic Situation and Prospects as of mid-2024" report, released recently states, “India’s economy is forecast to expand by 6.9% in 2024 and 6.6% in 2025, driven mainly by strong public investment and resilient private consumption. Although subdued external demand will continue to affect merchandise export growth, exports of pharmaceuticals and chemicals are expected to grow robustly.”
This 6.9% growth projection for India in the mid-year update is an upward revision from the 6.2% GDP forecast made by the UN in January. The UN's "World Economic Situation and Prospects (WESP) 2024" report released in January had projected India's growth at 6.2% for 2024, amid strong domestic demand and growth in the manufacturing and services sectors. The 2025 GDP growth projection for India remains unchanged at 6.6%.
It also noted that consumer price inflation in India is expected to decrease from 5.6% in 2023 to 4.5% in 2024, remaining within the central bank’s medium-term target range of two to six percent. Similarly, inflation rates in other South Asian countries are expected to further decelerate in 2024, ranging from 2.2% in the Maldives to 33.6% in Iran. Despite some moderation, food prices remained high in the first quarter of 2024, particularly in Bangladesh and India.
Incidentally India is moving ahead on the growth path as besides a strong and stable government at the centre, the policies framed are largely seen supporting country’s growth not only in the urban centres but also in the semi-urban and rural areas. Economic growth is driven by several key factors.
Increased government spending on infrastructure projects, such as roads, railways, and urban development, boosts economic activity and creates jobs. A growing middle class and rising income levels have fuelled domestic demand for goods and services, supporting overall economic growth.
Growth in manufacturing and services sectors, especially in technology, pharmaceuticals, and financial services, contributes significantly to GDP.
A young and large workforce provides a competitive advantage, driving productivity and innovation. Economic reforms, such as the Goods and Services Tax (GST), the Insolvency and Bankruptcy Code (IBC), and initiatives to improve the ease of doing business, have created a more conducive environment for growth.
Liberalisation of FDI policies has attracted significant foreign investment, enhancing capital inflows and technology transfer. The rapid adoption of digital technologies and increased internet penetration have boosted e-commerce, digital payments, and fintech, contributing to economic expansion.
Improved agricultural productivity, supported by government schemes and better monsoon seasons, has helped stabilise rural incomes and demand. Despite global challenges, exports in sectors like pharmaceuticals, chemicals, and IT services have performed well, supporting the overall economy.
Accommodative monetary policies by the Reserve Bank of India (RBI), including lower interest rates, have supported borrowing and investment. Higher labor force participation and better employment opportunities have strengthened economic activity.
Increasing urbanisation drives demand for housing, infrastructure, and services, contributing to economic growth. These factors combined have created a favourable environment for India's economic expansion, positioning the country as a key player in the global economy.
In India, labor market indicators have improved amid robust growth and higher labor force participation. The government remains committed to gradually reducing the fiscal deficit while seeking to increase capital investment.
India is blessed to have a strong government for many years and has been able to create a stable and dynamic economic environment that fosters growth, attracts investment, and improves the overall well-being of its citizens.
A strong government having the right numbers can design and implement effective economic policies that promote stability, growth, and development. This includes fiscal policies, monetary policies, and regulatory frameworks that create a conducive environment for economic activities. A strong government can mobilise resources and oversee the execution of large-scale infrastructure projects.
Providing quality public services such as education, healthcare, and social security supports human capital development and improves the quality of life, which in turn enhances productivity and economic growth. A strong government can maintain peace, protect property rights, and enforce contracts, which are critical for attracting investment and fostering economic activities. Ensuring law and order is fundamental for economic stability.
Balancing economic growth with environmental sustainability is increasingly important. The government is keen on enforcing environmental regulations, promoting sustainable practices, and investing in renewable energy. Maintaining fiscal discipline and managing public finances prudently are essential for economic stability.
Only a strong government can negotiate favourable trade agreements, protect national economic interests, and engage in international diplomacy to promote trade and attract foreign investment. Promoting research and development, supporting innovation, and facilitating the adoption of new technologies are crucial for modern economic growth. It can also create policies and provide funding to foster a culture of innovation.
Even as India is growing steadily in these times when major economies around the world are struggling to move their economies, there are a few challenges before India and the government must strive to address these challenges going forward to boost the economic growth.
Critics say that economic growth has not been evenly distributed, leading to significant income inequality and disparities between urban and rural areas. High levels of unemployment and underemployment, particularly among the youth and in rural areas, remain a significant challenge.
While there has been substantial investment, gaps in infrastructure, particularly in transportation, power supply, and urban amenities, still constrain growth. Quality of education and skill development programs needs improvement to meet the demands of a rapidly changing economy and to ensure a skilled workforce.
Despite reforms, bureaucratic red tape and complex regulatory requirements can still impede business operations and deter investment. The agricultural sector faces issues such as low productivity, inadequate infrastructure, and vulnerability to climate change, impacting the livelihood of a large portion of the population.
Rapid industrialisation and urbanisation have led to environmental challenges, including pollution, water scarcity, and loss of biodiversity. The health care system requires significant improvements in infrastructure, accessibility, and quality to cater to the vast population effectively.
Managing the fiscal deficit and public debt while continuing to invest in growth-oriented projects is a delicate balancing act. Corruption and issues related to governance and transparency can undermine economic progress and investor confidence.
Social unrest, stemming from ethnic, religious, or regional tensions, can disrupt economic stability and growth. India’s dependence on imports for energy and certain key raw materials makes it vulnerable to global price fluctuations and trade disruptions.
India's economy is affected by global economic conditions, including trade wars, geopolitical tensions, and shifts in global demand, which can impact exports and investment flows. Addressing these challenges requires comprehensive policy measures, structural reforms, and sustained efforts to ensure inclusive and sustainable growth.
The UN states that South Asia’s economic outlook remains strong, supported by India’s robust performance and a slight recovery in Pakistan and Sri Lanka. Regional GDP is projected to grow by 5.8% in 2024 (an upward revision of 0.6 percentage points since January) and 5.7% in 2025, below the 6.2% recorded in 2023.
Tight financial conditions and fiscal and external imbalances will continue to weigh on South Asia’s growth performance. Potential increases in energy prices amid geopolitical tensions and ongoing disruptions in the Red Sea pose risks to the regional economic outlook.
The world economy is now forecast to grow by 2.7% in 2024 (an increase of 0.3 percentage points from the January forecast) and 2.8% in 2025 (an increase of 0.1 percentage points). The upward revisions mainly reflect a better outlook in the United States, with the latest forecast pointing to 2.3% growth in 2024 (an upward revision of 0.9 percentage points since January), and in several large emerging economies, notably Brazil, India, and Russia.
Several large developing economies – Indonesia, India, and Mexico – are benefiting from strong domestic and external demand. In contrast, many economies in Africa and Latin America and the Caribbean are on a low-growth trajectory, facing high inflation, elevated borrowing costs, persistent exchange rate pressures, and lingering political instability. The potential intensification and spread of conflicts in Gaza and the Red Sea add further uncertainties to the near-term outlook for the Middle East.
Global trade is expected to recover in 2024. The early boost to trade flows in the first months of the year can be attributed to the de-stocking of inventory accumulated amid supply-chain disruptions in 2021-22. “China’s foreign trade grew faster than expected in the first two months of 2024, driven largely by exports to emerging markets, particularly to Brazil, India, and Russia,” the report noted.
However, persistent geopolitical tensions in the Middle East, disruptions in the Red Sea, and escalating freight costs continue to challenge global trade.
The mid-year update indicated that global economic prospects have improved since January, with major economies avoiding a severe downturn and managing to reduce inflation without increasing unemployment.
Nevertheless, the outlook remains cautiously optimistic. Higher-for-longer interest rates, debt sustainability challenges, continuing geopolitical tensions, and worsening climate risks continue to pose challenges to growth, threatening decades of development gains, particularly for least developed countries and small island developing states.
China’s outlook shows a slight uptick, with growth now expected to be 4.8% in 2024, up from the 4.7% projected in January. China’s growth is projected to moderate to 4.8% in 2024, down from 5.2% in 2023. The pent-up consumer demand released after the lifting of pandemic-related restrictions has largely dissipated. While enhanced policy support is expected to boost investments in public infrastructure and strategic sectors, the property sector poses a significant downside risk to the Chinese economy.
Oscar Auliq-Ice also believed that the economy is a living project, and with cooperation and determination, “We'll build a better future for every nation.”
By Alok Sharma
(The content of this article reflects the views of writers and contributors, not necessarily those of the publisher and editor. All disputes are subject to the exclusive jurisdiction of competent courts and forums in Delhi/New Delhi only)
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