The Indian economy is continuing to perform admirably, remaining as one of the fastest growing in the world as per the International Monetary Fund (IMF). Anne-Marie Gulde-Wolf, the Deputy Director for Asia and Pacific Department of the IMF, notified that according to latest figures, the Indian economy is expected to grow by 5.9 percent in 2023-24, a slight decrease from the previously projected 6.1 percent.
However, the IMF explained how ‘revenge consumption’ earlier on in the year is beginning to slow, pointing to slowing consumption growth. On the bright side, investment is likely to drive forward growth, with double-digit credit growth, strong purchasing managers’ indices (PMIs) and government spending on the rise. Furthermore, net exports, particularly services exports, are also expected to add to the already impressive growth momentum.
Looking from an external perspective, the IMF stressed potential risks to the Indian economy such as stronger-than-expected contraction of external demand, greater global financial tightened conditions and spillovers from recent financial market volatility.
Demand from China could have a positive effect on growth in other Asian countries. With growing consumption in the country, China is increasingly becoming a hub for technological advancements, in renewable energy and artificial intelligence under the umbrella of the G20. India and China, as the two largest and fastest-growing economies, have taken up regional cooperation to promote economic development.
While not as rampant as other countries, inflation remains above most central banks’ targets in Asia, with sticky core inflation likely to prolong that. In addition, increased uncertainty in the external environment will be put on the burden of the economies, with volatile exchange rates and capital flows putting pressure on banks.
To recover from the spending incurred during the COVID-19 pandemic and support the rise in public debt, governments must tread the fine line between fuelling growth and fiscal consolidation. Long-term concerns exist in the form of ageing populations and lower productivity growth, reducing GDP growth despite potential demographic dividends with appropriate policies in place. Weak geopolitical contexts further reduce confidence in the economy.
Interestingly, the IMF is predicting growth for China in 2023 of 5.2 percent, a rise on 2022’s figures, which will in theory have a positive effect on other countries in the region.
For all the optimism around by the IMF officials, the situation is no doubt precarious and the impact of the various risk factors could be varied and unpredictable.
