The Indian National Statistical Office announced on January 5 that the country's GDP is expected to grow by 7.3% for the fiscal year ending in March 2024, driven by increased government spending and a rebound in manufacturing. This projection surpasses the Reserve Bank of India's forecast of 7% and market expectations of 6.7%, following a 7.2% economic growth rate in the previous fiscal year.
The statistics bureau predicts that manufacturing, which constitutes approximately 17% of India's GDP, will grow by 6.5% compared to 1.3% in the previous fiscal year. Construction output is also expected to increase by 10.7%, up from the previous year's 10%.
However, agricultural growth is slowing down. The sector, accounting for about 15% of GDP, is anticipated to see only a 1.8% increase, down from 4% last year, which is likely to affect rural wage levels.
Analysts note that India's economic growth has historically been driven by the services sector. As of 2022, agriculture accounted for 17% of India's GDP, services nearly 50%, and manufacturing has remained weak.
The Indian government has long recognized this issue. Prime Minister Modi launched the "Make in India 1.0" initiative at the beginning of his tenure in 2014. With government promotion of infrastructure development, industrial policy, and fiscal support, India's industrial sector has seen a continued uplift.
However, challenges are expected for the Indian economy starting in the next fiscal year from April. Global economic uncertainties and persistent inflation in India, especially the continuous rise in food prices, will be a focus for the government. The Reserve Bank of India has maintained the benchmark interest rate unchanged for five consecutive times, but there might be rate cuts to stimulate the economy before the 2024 elections.
Wall Street Watch analyzes that India faces potential financing challenges and currency pressure due to imbalances in its current account and fiscal deficit. The central government's fiscal deficit for the 2022-23 fiscal year slightly narrowed to 6.4%, but with state deficits included, India's total fiscal deficit remains high at 9.4% of GDP, the highest in nearly two decades.
The Ministry of Finance in India aims to reduce the central deficit to 5.9% of GDP for the 2023-24 fiscal year and further to 4.5% by the 2025-26 fiscal year.
Finance Minister Nirmala Sitharaman is set to present an interim annual budget on February 1. The market expects increased spending on infrastructure from the government, thanks to growing tax revenues, and plans to reduce the fiscal deficit to 5.9% of GDP.
