India is on the cusp of a long-awaited economic takeoff: RBI

NEW DELHI: There is a wave of optimism globally, surrounding India’s economic prospects, with major financial institutions forecasting a significant upswing in growth, the Reserve Bank of India report said.

“Internationally there is a growing optimism that India is on the cusp of a long-awaited economic takeoff,” the RBI said.

According to RBI report, the International Monetary Fund (IMF) has revised India’s GDP growth forecast upwards by nearly 2 percentage points for the fiscal year 2023-24.

The IMF’s April 2024 World Economic Outlook highlights the expected robustness in 2024 and 2025, attributing this to strong domestic demand and a growing working-age population.

The Organization for Economic Cooperation and Development (OECD) echoed this sentiment in its May 2024 Economic Outlook, citing recent positive indicators and strong investment trends.

The OECD expects India to sustain real GDP growth through enhanced business confidence and substantial investments.

One of the most notable achievements highlighted by global observers is the dramatic reduction in poverty.

According to the World Bank, at the height of the COVID-19 pandemic in 2021, only 12.9 per cent of India’s population lived on USD 2.15 a day, the benchmark for extreme poverty.

Recent estimates suggest that extreme poverty in India is nearing extinction, a remarkable transformation for a country once synonymous with deprivation.

India’s power sector has achieved 100 per cent electrification and integration into a unified national grid. Rural areas now enjoy 20 hours of daily power availability, while urban areas have 23.5 hours.

Additionally, India has become the world’s third-largest producer of renewable energy, showcasing its commitment to sustainable growth.

The digital revolution in India has also been pivotal. With the highest number of digital transactions globally and broadband connectivity reaching over 93 per cent of villages, India is rapidly becoming a digital powerhouse.

The Bharat Net project aims to provide high-speed internet to all villages, while platforms like the Open Network for Digital Commerce (ONDC) are expanding market access for small businesses.

The India Stack digital public infrastructure is enhancing productivity, efficiency, and employment, while improving the targeting of fiscal transfers.

Private investment is thriving, bolstered by robust mergers and acquisitions (M&A) activity, particularly in the energy sector. Cross-border investments are on the rise, although outbound deals have decreased significantly.

India’s adaptability and resilience in M&A amidst global challenges are driving this growth.

India is the seventh-largest exporter of services globally and the second-largest among developing countries. Business services are expanding, supported by global capability centers.

Despite a slight decline in the share of software exports, global IT expenditures are projected to grow by 8 per cent in 2024, with Indian IT exports likely to outpace this growth, driven by the consulting segment.

The retail sector is also booming, with Q4 2023-24 showing significant year-on-year sales growth across various categories, including sports goods, food and grocery, apparel, footwear, and quick service restaurants.

Green power projects worth approximately Rs 700 billion are expected to become operational this year, marking a record investment in a single year.

Projections indicate incremental project investments could reach Rs 765.2 billion by 2025-26, driven by policies promoting eco-friendly energy sources.

India’s merchandise exports grew by 1.1 per cent year-on-year in April 2024, reaching USD 35 billion. The outlook for software services remains strong, with global IT spending set to increase significantly.

Inflation has shown signs of moderation, with the Consumer Price Index (CPI) recording a 4.8 per cent increase year-on-year in April 2024, down from 4.9 per cent in March.

Core inflation eased to 3.2 per cent, the lowest in the current CPI series. However, food inflation edged up slightly, and fuel prices saw deeper deflation.

India is anticipated to be among the top 10 economies for foreign direct investment (FDI) momentum in 2024, according to fDi Intelligence.

Despite a net outflow of USD 1.1 billion from Indian equities in April, the country’s foreign exchange reserves have increased by USD 21.7 billion in 2024, the highest among major reserve-holding nations, the report added.

Reserves now stand at USD 644.2 billion, covering more than 10 months of projected imports for 2024-25 and nearly all external debt as of end-December 2023.

India is positioned to remain the fastest-growing major economy, demonstrating resilience amid geopolitical challenges and supply chain pressures, it said.

The country’s economic activity rebounded in April 2024, with GDP growth for Q1 2024-25 expected to be around 7.5 per cent.