Indian economy set to grow 7% next financial year
India’s Ministry of Finance is predicting that the country’s economy is to grow close to 7% in the financial year 2024-25 that starts this April.
In its monthly review, it said the strength of domestic demand has driven the economy to a 7%-plus growth rate over the past three years; India’s economy grew 7.2% in 2022-23 and 8.7% in 2021-22. The Indian economy is expected to grow 7.3% in the current financial year 2023-24, remaining the fastest-growing major economy.
The review, issued by Department of Economic Affairs, said: “The supply side has also been strengthened with investment in infrastructure – physical and digital – and measures that aim to boost manufacturing. These have combined to provide an impetus to economic activity in the country.
“Accordingly, in FY25, real GDP growth will likely be closer to 7%.” It added that there was “considerable scope for the growth rate to rise well above 7% by 2030”.
It said: “The rapidly expanding digital infrastructure is continuously improving institutional efficiency. Technological progress is picking up pace with rising collaboration with foreign partners in the production of goods and services. Decisive steps have been taken to speed up human capital formation. Finally, the overall investment climate is increasingly becoming more favourable with sustained enhancement in the ease of doing business.”
In the next three years India is expected to become the world’s third-largest economy, with a GDP of $5 trillion, it said.
“This will be a significant milestone in the journey to delivering a quality of life and standard of living that match and exceed the aspirations of the Indian people,” the Ministry’s review said.
India’s services growth at six-month high
Robust demand drove India’s services sector to grow at the fastest rate for six months in January, according to a business survey which also showed output prices rose at their slowest rate since February 2023 and optimism was at a four-month high.
All the data suggests India would continue to hold its title of fastest growing major economy over the coming months.
The HSBC final India Services Purchasing Managers’ Index, compiled by S&P Global, jumped to 61.8 last month from December’s 59.0.
The final reading also beat the estimate of 61.2, remaining above the 50-mark that separates expansion from contraction for a 30th consecutive month.
“New business expanded at a faster pace and managers’ expectations for future activity was strong. The new export business index accelerated, signalling that India’s services exports remained robust,” said Ines Lam, an economist at HSBC.
The Index also showed that Indian exports were at a three-month high. Surveyed companies reported increased business from clients worldwide, including Afghanistan, Australia, Brazil, China, Europe, the UAE and the US. However, as of the beginning of the 2024 year, companies observed a continued rise in overall costs, citing food, staff and freight as the primary contributors to cost pressures.
That kept firms optimistic at the start of the final quarter of fiscal year 2023-24 with confidence around year-ahead activity hitting its highest since September, encouraging firms to continue recruiting staff.
Although operating costs rose at the quickest pace since August, prices charged increased at the slowest pace in nearly a year, indicating a moderation in inflation.
Overall, inflation hit a four-month high in December and remained above the Reserve Bank of India’s medium-term target of 4%.
With manufacturing activity expanding at the fastest pace in four months and services industry growth remaining robust, the overall HSBC India Composite PMI Output Index rose to a six-month high of 61.2 in January from December’s 58.5 and better than a flash estimate of 61.0.
The survey is conducted by sending questionnaires to a panel of around 400 companies in India’s service sector.
