Notwithstanding global headwinds, India looks forward to a bright outlook for the new financial year beginning April 1 on the back of strong growth, continued public investments, stable inflation, growing private consumption and the prospects of a normal monsoon, the Union finance ministry said on Friday in its monthly economic review.
However, it said that geopolitical disruptions have impacted the inflow of foreign direct investment (FDI). “Mirroring the slowdown in FDI flows to developing countries, gross FDI inflows to India also dipped but only slightly in the April 2023-January 2024 period,” it said. India received FDIs to the tune of $59.5 billion in the 10-month period as compared to $61.7 billion in the same period a year before.
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According to the January 2024 edition of ‘Investment Trend Monitor’ released by the United Nations Conference on Trade and Development (UNCTAD), the global FDI in 2023 is estimated at $1.37 trillion, 3% up over 2022. Its flows to developing countries, however, fell by 9% to $841 billion, affected by factors such as economic uncertainty due to adverse geopolitical situations and higher interest rates.
Citing the ‘Investment Trends Monitor’, the finance ministry report said, “Though FDI inflows to India dropped in 2023, it witnessed a stable number of new project announcements, keeping it in the top five of global greenfield project destinations. The rising investment in greenfield projects in India is consistent with the global trend, where most of the economies are witnessing a surge in greenfield investment.”
“A modest increase in global FDI flows is likely in 2024,” it said, adding that a decline in inflation and borrowing costs in major markets could stabilise financing conditions for international investment deals. “However, there are significant risks, including geopolitical, high debt levels accumulated in many countries, and concerns about further global economic fracturing,” it added.
The ministry, in its report, expressed confidence that domestic demand will maintain India’s growth momentum. While robust investment activity is clearly underway, strengthening private consumption demand is evident from indicators such as burgeoning air passenger traffic and sale of passenger vehicles, digital payments, improved consumer confidence and expectations of a normal monsoon, it said.
Increased demand for residential properties in Tier-2 and Tier-3 cities augers well for furthering construction activity. Non-farm employment has revived, improving the capacity to absorb the labour leaving agriculture. The ascent of manufacturing sector employment is expected to be marked by upscaling of enterprises and sunrise sectors emerging as catalysts for generating quality employment, it said. “India’s strong economic performance, borne out by recent data releases, stands out amidst the sluggish global growth,” the report said.
According to the second advance estimates data released on March 29 by the National Statistical Office (NSO), the Indian economy saw a robust 8.4% growth in the third quarter of 2023-24, driven by investment push, increased manufacturing and services activities and an upside in tax revenue. The economy is projected to expand by 7.6% in the current fiscal, faster than the 7.3% forecast made by the first advance estimates on January 5, 2024. According to the sectoral data, manufacturing and construction were among the best performers with annual growth rate of 8.5% and 10.7%, respectively.
The report expects India’s inflation outlook to be positive in the upcoming months, with core inflation trending downwards, indicating a broad-based moderation in price pressures. “The pick-up in summer sowing is likely to help reduce food prices,” it said.
On the external front, the narrowing merchandise trade deficit and the rising net services receipts are expected to improve the current account balance in FY24, it said. According to the official data released on March 15, India’s merchandise exports reported 3.12% annualised increase, to $36.92 billion, in January despite global headwinds, a positive growth for the second consecutive month, while overall exports — both goods and services — jumped 9.27% to $69.72 billion.
The report stated that the ongoing geopolitical factors have impacted India’s external sector. “Slower growth, particularly in key trading partners like Europe, is dampening the demand for India’s exports. However, a welcome decline in global commodity prices from their post-Ukraine conflict highs offers some relief,” it said.
While import volumes have increased substantially, a fall in international commodity prices has brought down the overall value of imports, it said. “The rise in the volume of imports reflects India’s sustained domestic demand for imports driven by a rapidly growing and expanding economy,” the report said.
India’s services exports have been consistently rising, leading to an increase in net services receipts, it said. “Going forward, narrowing merchandise trade deficit, coupled with rising net services receipts, is expected to result in an improvement in the current account deficit,” it added.