In a surprising turn of events, India’s economy has outperformed predictions, with a robust growth rate of 7.2% in the fiscal year 2023-24, contrary to former Reserve Bank of India Governor Raghuram Rajan’s cautious forecast of sub-5% growth. Despite initial skepticism, the nation’s economic resilience has become evident, showcasing strengths that go beyond mere luck. Rajan, known for his conservative economic outlook, attributed India’s impressive performance to global developments that favored the nation. Firstly, the industrial economies of developed countries defied expectations of a downturn, contributing to healthy rates of employment growth and positively impacting India’s exports and domestic economic activity. Secondly, Rajan highlighted the lackluster performance of the Chinese economy and its subdued demand for commodities, particularly oil. This situation led to lower commodity prices globally, benefiting India, a major consumer of crude oil. However, upon closer examination, several factors beyond luck have played a role in India’s economic success. Contrary to Rajan’s emphasis on exports, the data indicates that India’s exports remained steady rather than experiencing a notable surge. Notably, oil prices did rise over the past year, challenging the notion that a dip in global commodity prices solely contributed to India’s economic boost.
Digging into the GDP figures reveals broad-based and robust growth trends, particularly in the construction sector, which witnessed a significant 10.7% growth. Agriculture, mining, and manufacturing also displayed resurgence, creating a ripple effect for widespread economic growth. Addressing previous concerns about India relying too heavily on domestic consumption for growth, the data indicates a tapering trend in consumption expenditure. Private final consumption expenditure as a percentage of GDP slipped from 58.5% in 2022-23 to 56.5% in 2023-24. However, this decline is compensated by a rise in gross fixed capital formation (GFCF), indicating an increase in overall investment in the economy. Rajan acknowledged the government’s stepped-up infrastructure investment as a significant contributor to economic growth, recognising the role of infrastructure in enabling economic activity. A noteworthy factor contributing to India’s economic success is the widespread digitalisation of small businesses. Traditionally operating in the informal sector, these businesses are now entering the formal economic accounting world. By embracing online transactions, these small enterprises are not only contributing to the official GDP but also gaining access to formal banking channels. This shift brings about a transformative change in the creditworthiness and bankability of small businesses. With access to credit and other business facilities, these enterprises have the potential to significantly increase their turnover, elevating small-town and village economies.
The rising formalization and bankability of small businesses mark a structural shift in the Indian economy, creating a new paradigm for growth. This development could serve as a buffer, insulating India from potential challenges in the global economy. Looking ahead, the key lies in ring-fencing the Indian economy to shield it from potential adverse global economic conditions. Drawing from past experiences, such as the effective measures taken by the Reserve Bank of India during the global financial meltdown, India’s economic managers are well-equipped to navigate challenges and sustain growth. India’s economic landscape is evolving, driven by a combination of factors including infrastructure investment, a resurgence in key sectors, and the transformative impact of digitalization on small businesses. As the nation navigates potential global uncertainties, these internal strengths position India for continued economic growth.