‘Overall fairly optimistic but 2024 is going to be a year of transition’ 

It’s been a year of resilient growth for the Indian economy despite several challenges including global slowdown in trade environment. Trade flows both globally and in India slowed down noticeably. The other key challenge was interest rate cycle as global central banks upped interest rates to combat inflation.

In that background, Indian economy performed well and consensus forecast for 2023 increased as the year had gone by.

It is certainly not a Goldilocks scenario. Our forecast is 6.4 percent growth in 2024-2025 —still much noticeably higher than 6 percent and a picture of resilience. Overall, we are fairly optimistic but 2024 is going to be year of transition.

There are going to be challenges —renewed external weakness. We expect global growth to slow in 2024 particularly out of US. We also expect fairly subdued growth in Europe.

While India is mostly a domestic driven economy, it is much in sync with the global economic cycle which means there is going to be challenge on that front.

Secondly, impact of rate hike is delayed and we expect some of that push back from higher interest rates will make itself felt in several coming quarters. This is likely to take some wind out of Indian economy.

Lastly, agricultural and rural sector has still been underperforming the urban space. That’s one unevenness in growth environment that we are watching out for likely improvement during 2024, but one of factors that will hold back growth next year.

For RBI, the inflation environment is little bit complicated because of ElNino conditions. We have high food inflation which is constraining RBI from moving quicker on the interest easing front. With one eye on food inflation, RBI may not

cut interest rates in a hurry and will most likely wait until tail end of June 2024 quarter or July-September 2024 quarter before they cut.

The critical question for 2024 will be how global interest rates play out. US Fed surprised us on the dovish side in its most recent December meeting. We expect 75 basis points of easing out of the US Fed next year. Around June-July 2024 is when we expect the US Fed to start cutting rates.

Boosting manufacturing share in overall GDP could boost the growth dial higher. India has a big comparative advantage in

services and unlikely to change that materially over the next few years. I think manufacturing will move up the value chain as economy matures. But displacing services is unlikely to happen. We could see size of manufacturing in economy inch up, but dominance of services as the main engine of growth is likely to remain a feature for India’s growth story for next 10-15 years. India is very much a services driven economy.

On the public sector side, we expect gradual consolidation in fiscal outlay in terms of net government balance over next few years. We still expect capex to be big part of fiscal spending. But we do expect overall level as percentage of GDP coming down over next few years. Given that post pandemic there has been an increase in public sector deficit for India.

This means public capex is going to be a feature. It’s also that private capex need to step in to maintain that momentum in the infrastructure outlay side of the economy.