On account of India’s optimistic economic growth, S&P Global Ratings raised the outlook on India’s economy to ‘positive’ from ‘stable’. But what has been the build-up so far to reach this stage? Here’s my take:
A. A well-paced economic growth
The Indian economy is growing at an unmatched rate, fuelled by economic stability, enhanced production and rising exports. Government data shows that India’s GDP increased by 8.2 per cent in 2023–2024, as against the government forecast of 7.6 per cent, thereby beating market expectations.1 Resultantly, we now have the world looking at India for potential opportunities, leading to a surge in investment inflow. This growth is a result of large-scale supply-side reforms and an enhanced global standing, which is improving the overall domestic business environment and strengthening relationships with both established and emerging economies.
B. A strategic approach to capex
The government has been pushing for a capex-led growth strategy, which is stimulating the economy by increasing investments, creating high-value assets and inducing widespread multiplier effects. Capex has risen to 23 per cent of the budgetary spending, compared to less than 12 per cent previously.2 The actual capex spend has increased at a Compound Annuam Growth Rate (CAGR) of 17.5 per cent in the last 10 years.3 As we have witnessed in the last few years, major infrastructure projects—for instance, the Mumbai Trans Harbour Link and the Western Dedicated Freight Corridor—are boosting connectivity and logistics. Besides this, the spending on major subsidies has also remained largely unchanged—surging at a CAGR of only 4 per cent4 —reflecting a more stable approach towards long-term economic growth. Also, despite subsidies marking a relatively slower growth rate, the government is now pursuing a more targeted approach by taking measures, such as Production Linked Incentives (PLIs) and M-SIPS, to incentivise manufacturing.
C. Practicing fiscal discipline
India has adopted a well-balanced approach to fiscal consolidation. In the February 2024 budget, the government reiterated its commitment to reducing the fiscal deficit to below 4.5 per cent of GDP by 2025–2026.5 Recent data also reveals that fiscal deficit stood at INR16.54 lakh crore in FY24 as against the budgetary target of INR17.86 lakh crore. With robust revenue growth and lower subsidy pressure, India’s fiscal position is expected to further strengthen.
As the road ahead looks promising with India expecting a rating upgrade in the next two years, we must focus on sustaining this momentum. Ensuring a mutually inclusive and sustainable growth and further strengthening the domestic ecosystem by addressing underlying complexities will help India stay on track with its economic goals.
Source: Government websites
[1] Press Release, Ministry of Statistics and Programme Implementation, 31 May 2024, accessed on 24 June 2024
[2] India Strategy: Modi 3.0 and Positioning into Election Results, Bernstein Research, 21 May 2024, accessed on 24 June 2024
[3] India Strategy: Modi 3.0 and Positioning into Election Results, Bernstein Research, 21 May 2024, accessed on 24 June 2024
[4] India Strategy: Modi 3.0 and Positioning into Election Results, Bernstein Research, 21 May 2024, accessed on 24 June 2024
[5] Interim Budget 2024–2025, India Budget, 1 February 2024, accessed on 24 June 2024
[6] India's Fiscal Deficit Improves to 5.6 per cent of GDP in FY24, Lower than Target of 5.8 per cent, The Economic Times, 31 May 2024, accessed on 24 June 2024
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