Indian economy poised for a more healthier growth in coming years!

Agriculture was a big disappointment. As per the official data, the growth in agriculture, livestock, forestry and fishing basket was down to 0.6% in the fourth quarter of FY24 against a higher 7.6% upswing in the same three-month period a year ago. Trade, travel and transport also registered a fall in growth rate to 5.1% from 7% a year ago

With the election fever reaching a crescendo, developments on the Indian economy took a back seat in recent days.

Last Friday, the India’s National Statistics Office (NSO) released data for the economic growth for the fourth and final quarter of the last financial year-Q4FY24, which revealed that the country’s real Gross Domestic Product (GDP) logged a stellar upswing of 7.8 per cent during January-March 2024. Interestingly, these numbers came out just hours before the country went to the final phase of polling on Saturday.

What do these Q4 growth numbers tell us? The NSO, when it released the numbers for the third quarter, projected a growth rate of 5.9 per cent for the Q4FY24. The Reserve Bank of India (RBI) forecast an upswing of seven per cent for the same period. But the real economic growth in the fourth quarter came at a much higher rate, thus surprising expectations of even the optimists.

The GDP clocked a growth of 6.2 per cent in the same three-month period a year ago. Of course, the Q4FY24 growth was lower quarter-on-quarter. In the third quarter of FY24, the economy zoomed by 8.6 per cent as per the latest upward revision. Still, the Q4FY24 GDP expansion can be described as ‘stellar’ growth.

The manufacturing sector continues to add glitter to the economy. In the fourth quarter, this key sector expanded by a whopping 8.9 per cent against 0.9 per cent in the same period a year ago. That’s good news for the overall economy as a decent upswing in the manufacturing sector leads to the creation of new jobs. Construction and defence sectors also fared well. Higher tax collections also contributed to the GDP growth.

However, agriculture was a big disappointment. As per the official data, growth in agriculture, livestock, forestry and fishing basket was down to 0.6 per cent in the quarter against a higher 7.6 per cent upswing in the same three-month period a year ago. Trade, travel and transport also registered a fall in growth rate to 5.1 per cent in Q4FY24 from seven per cent in Q4FY23.

However, thanks to the higher-than-expected growth in the final quarter, India could end FY24 with a GDP upswing of 8.2 per cent.

Thus, India retained the fastest growing large economy tag in FY24 as well. Its economic growth was at 9.1 per cent in FY22 and seven per cent in FY23. With a growth rate of 8.2 per cent in the last financial year, the country has consistently clocked more than seven per cent growth in the last three financial years. That’s a good track-record indeed.

The RBI released its annual report a day before the GDP data was out. In the report, the central bank projected a GDP growth rate of seven per cent for the current fiscal year. It cited healthy balance sheets of both banks and corporates that, according to it, would fuel a robust economic growth in the ongoing financial year and beyond. RBI, which recently paid a record dividend of Rs. 2.11 lakh to the central government, said consumption demand in rural areas would go up in the wake of inflationary pressures easing out significantly, which would be a big positive for overall growth. On the inflation front, it said that the consumer price index (CPI)-based inflation would come down to 4.5 per cent in 2024-25. This came down by 1.5 percentage points to 5.4 per cent in the last financial year.

However, changes in weather patterns and other climate-related challenges may derail RBI’s arithmetic on inflation. When it comes to economic growth, geo-political tensions and international commodity prices may pose a downside risk as well. Besides, volatility in global financial markets will also adversely impact the country’s economic growth prospects, the apex bank said.

A couple days before the GDP data was out, S&P Global Ratings turned ‘positive’ on India’s sovereign rating. Citing robust growth and enhanced quality of public spending in recent years, the global rating agency upgraded the outlook to ‘positive’ from ‘stable’. However, it retained the country’s sovereign rating at ‘BBB-’, the lowest investment grade. But it hinted that there could be an upgrade in the country’s rating in the next two years if the central government succeeds in bolstering economic resilience. That, undoubtedly, is a good sign.

Apart from S&P, two other global rating agencies, Fitch and Moody’s, also gave the lowest investment grade rating to India. If S&P upgrades its rating, the other two agencies will also follow suit. However, the Union Government will have to pull up its socks, focus on meaningful policies and constructive development for the country to get a higher sovereign rating from the global agencies. The fact of the matter is that a higher sovereign rating will help India attract more foreign investments.

Nevertheless, all these positive developments about the Indian economy have come at a time when Narendra Modi is poised to achieve the rare milestone of securing a third consecutive term as the country’s Prime Minister.

Responding to robust GDP numbers in the last quarter, Modi tweeted: “This is just a trailer of things to come”. That statement clearly signals a bigger push for the economy in his third term.

In the last two quarters, the Indian economy beat estimates and posted higher-expected growth. This trend is likely to continue in the coming years as the fruits of the country’s widening circular economy are flowing in.

However, the overall economic trajectory will depend on what kind of effective economic policies that the central government will adopt during Modi 3.0. That’s for sure.