Unlocking India's decadal growth

Sustained high growth will need hard reforms he political outcomes of the 2024 general election are unlikely to affect the near-term policy choices embedded in alternative policy visions and reform agendas might lead to very different economic profiles over the medium to long term.

While the external environment still seems unsettled and volatile, the large G7 economies appear to be moving towards a "soft landing" to varying degrees.

Hence, the policy response will become more conducive to growth, gradually lowering interest rates.

This bodes well for emerging markets, with a "riskon" investor sentiment attracting more capital inflows.

In this context, the domestic macroeconomic environment remains robust, with nowcasting metrics indicating continuing strong demand. Financial year 2023-23 (FY24) growth is expected to print close to 8 per cent, and the Reserve Bank of India's FY25 growth forecast of 7 per cent remains eminently feasible. A large part of investor confidence in India is due to the demonstrated fiscal discipline by the Centre, in coordination with the calibrated monetary policy response, which is perhaps the best executed and most agile in the world.

On domestic consumption, Q4FY24 results of consumer companies point to improving rural demand, further reinforced by the predicted normal rains. While consumption import demand is likely to remain robust, India's current account is unlikely to be adversely impacted, with the deficit increasing to maybe 1.2 per cent of FY25 gross domestic product (GDP) from last year's expected 1 per cent. Inflation, particularly nonfood and fuel (i.e core inflation), is falling and the headline rate might be expected to move towards the 4 per cent target towards the end of FY25, thereby allowing a relaxation of monetary policy. Bank credit flow to micro, small and medium enterprises (MSMEs) has remained strong, growing 20.1 per cent year-on-year (YoY) as of March 24, 2024. Loan disbursals by non-banking financial companies (NBFCs) for the relevant MSME borrowing requirements had slowed marginally over the first nine months of FY24, but still remain healthy.