Economic growth to remain strong at 6.2% in 2024; private consumption and public spending to provide support

By Ishaan Gera, ET Bureau | Jan 05, 2024

Synopsis: The UN projects India’s economy to grow at 6.2% in 2024, citing robust domestic demand and sectoral growth. Despite a slight downward revision, the forecast underscores resilience, supported by government spending and supply chain diversification.

Robust domestic demand and strong growth in the manufacturing and services sector will help sustain growth in India in 2024 despite global headwinds, the UN said Friday.

In its World Economic Situation and Prospects 2024 report, the UN projected the Indian economy to grow 6.2% in 2024, slightly lower than the 6.3% estimated for 2023.

“Economic growth in India is projected to remain strong at 6.2 per cent in 2024, following an estimated expansion of 6.3 per cent in 2023, mainly supported by resilient private consumption and strong public investment,” the UN said in its report.

The forecast for 2024 was revised downward by 0.5 percentage points, but it expects a bounce back to 6.6% in 2025.

“While manufacturing and services sectors will continue to support the economy, erratic rainfall patterns will likely dampen agricultural output,” it added.

UN noted that despite the volatile scenario, investment in developing economies has been more resilient than investment in developed countries.

“Investment in South Asia, particularly in India, remained strong in 2023,” it said, highlighting government spending and supply chain diversification away from China as reasons for India’s strong investment record.

The capex spending of centre was up 59.6% in the first eight months of the fiscal compared to the previous year, whereas India’s 15 major states have spent 37% more than last year.

“Inflation is expected to ease further, pointing to generally favourable economic conditions in the coming years,” said Zheng Jian, Economic Affairs Officer, UNESCAP.

India’s inflation is expected to average 5.4% in FY24 and fall further in the coming year. An ET poll median pegged FY25 inflation at 4.7%.

A picture of resilience

“India is a beacon of resilience and growth,” said Nagesh Kumar, director, Institute for Studies in Industrial Development. Kumar noted that for FY24, the economy may record over 7% growth, and may reach closer to 7% in the coming fiscal.

“Elections are also likely to provide a boost, which help create economic activity,” Kumar said.

Kumar said the new government is also likely to take the capex momentum forward.

“Signs of private investments getting crowded-in are visible. Investment is needed until infrastructure gaps are eliminated,” he added.

Kumar further said that it was also important for manufacturing to continue its momentum if India wanted an 8% growth, needed to become a $30 trillion economy by 2047.

Climate and debt

The report also argued for greater cooperation to lift economic growth and help with green transition.

“Climate change-related events pose a risk to agricultural performance and the economic outlook of India,” Jian said.

The report noted that limited fiscal space in East and South Asian economies was also a risk in 2024, and the countries needed to improve spending efficiency and implement revenue-enhancing reforms.

“Central banks will continue to seek a delicate balancing act in 2024 as they strive to manage inflation, revive growth and ensure financial stability,” UN said.