The latest report from the International Monetary Fund (IMF) has raised its growth forecast for India, stating that it will continue to maintain strong growth in 2023 and 2024, but analysts warn that the Indian economy will face headwinds in the future.
According to the recently updated World Economic Outlook by the IMF, the Indian economy will grow by 6.3% in 2023, higher than the previous forecast of 6.1%. According to multiple economists, the rapid growth of the Indian economy is mainly attributed to increased local consumption, infrastructure spending, and the establishment and investment of more enterprises. However, geopolitical risks and inflation concerns will be a challenge.
Alicia Garcia Herrero, Chief Economist for Asia Pacific at the French Foreign Trade Bank, stated that India will continue to be a bright spot in the global economic outlook, with consumer spending remaining one of the largest growth drivers in the world's most populous country.
She also pointed out that in recent years, the country has been favored by foreign investors, mainly due to its young population structure and rapidly growing middle class, and we expect this trend to continue
According to a report by BMI, a research firm under Fitch Solutions, India's consumer market will become the third largest in the world by 2027 as the number of middle-income households increases. "There is a lot of pent up demand in India, and market sentiment is very optimistic," said Nilesh Shah, Managing Director of Kotak Mahindra Asset Management, The Indian government has taken several measures to improve its business, which is attracting global and local investors. More and more Indians are choosing to work or start businesses in India instead of "going to the Western world to find better opportunities".
The headwind is still blowing
Although the IMF's forecast for India's economic growth rate in 2024 is 6.3%, a group of economists still believe that India will face a series of unfavorable factors.
Garcia Herrero of the French Foreign Trade Bank warned that "the main obstacles facing India will be the widening current account deficit, rising inflation, and increasing geopolitical tensions
Garcia Herrero added that India needs more foreign investment to create more manufacturing employment opportunities.
This economist pointed out that although the pre election environment in India is very conducive to economic growth, the loose monetary policy of the Indian Central Bank will "create problems in the future".
He also stated that "India's productivity has not increased to the level required to maintain long-term sustainable growth, which will become a problem in the next 20 years
Weather factors and geopolitical factors have also had an impact on India's economic development. Kotak Asset Management's Shah pointed out that heatwaves and droughts have caused water levels in reservoirs in southern India to be below the 10-year average, which has had a negative impact on agriculture and rural recovery.
The conflict between Palestine and Israel that began last week led to an international oil price surge of over 4% on Monday. Shah stated that over 80% of India's oil consumption is imported, so an increase in oil prices will have a negative impact on India's trade and fiscal deficit, inflation, and economic growth.
In addition to the above factors, global economic growth is slowing down. The IMF wrote in its outlook report that growth remains slow and uneven, and global differences are widening. The global economy is faltering forward.
The IMF predicts that global economic growth will slow from 3.5% in 2022 to 3% this year, and further decline to 2.9% in 2024.