India’s economic outlook April 2024

The country achieved an impressive 8.4% growth rate in the third quarter of fiscal year 2024, exceeding all previous expectations. For this quarter, market experts had predicted a slower increase rate of 6.6% to 7.2%. According to Deloitte's January 2024 prediction, growth ranges from 7.1% to 7.4%. After significant data revisions, India's GDP growth has reached 8.2% year over year (YoY) for the past three quarters of the fiscal year.

 

Based on India's GDP updates and stronger-than-expected growth in fiscal 2024, we've raised our growth prediction for this year from 7.6% to 7.8%. We anticipate a slight fourth-quarter increase due to uncertainty around India's 2024 general elections and a moderate rise in consumer growth. 

 

Deloitte’s Forecast on India’s economic growth

 

Our predictions for the near future remain consistent with prior projections, except for a slight adjustment to the projected range due to a more significant base impact in fiscal 2024. We anticipate that the GDP growth will reach approximately 6.6% in the forthcoming fiscal year (fiscal 2025) and 6.75% in the subsequent fiscal year (fiscal 2026). This projection takes into account the increasing influence of geopolitical uncertainty on investment and expenditure decisions within global markets.

 

With the resolution of the major election risks, the overall economy is expected to experience a synchronized rebound in 2025. In 2024, central banks in the West are expected to announce a couple of interest rate reductions. India is expected to see more money coming into the country, which will lead to more private investment and an increase in exports. 

 

The growing consumer spending trends in India are the main topic of this edition of India’s Economic Outlook, which also emphasizes the country's middle class growth. In addition to unpredictable post-pandemic increase in consumer spending, there has been a change in consumer behavior, with the demand for upscale and luxury goods and services expanding more quickly than that of necessities.

 

Analyzing the growth observed in the third quarter of fiscal year 2024

 

In the third quarter of the current fiscal year, real GDP growth rose to 8.4% compared to the previous year.

 

In the third quarter, India's GDP grew due to a 10.6% increase in private investment spending. Consistent investment growth of over 8% year-on-year over the last four quarters indicates a potentially significant increase in private capital expenditure in India. The government's substantial capital expenditure over the past few years may compete with private investment.

 

However, Indian consumers' spending habits increased from the third quarter of the fiscal year 2024 to 3.5% YoY. Improved sales of passenger cars, two-wheelers, and consumer durable manufacturing index suggested that private consumption had rebounded during this time. Three-quarters of India's data indicates that strong local demand has supported its strong growth despite persistent geopolitical issues and moderate global growth.

 

The government's consumption dropped by 3.2% YoY in the third quarter, hindering GDP growth. Export growth also decreased by 3.4% YoY, but net sales improved due to a sharper reduction in imports (8.3% YoY) caused by declining crude oil prices.

 

Does the growing disparity between GDP and GVA pose a concern?

 

The discrepancy between the two measurements has caused considerable uncertainty over the pace of Indian economic activity.

 

Despite the 8.4% annual growth in GDP and a 6.5% rise in GVA, it is not uncommon for GVA growth to lag behind GDP growth significantly. In the last decade, there have been four occasions where the difference between the two growth measures has exceeded one percentage point. The notable decrease in agriculture and improved net taxes contributed to the current quarter's difference.

 

The short-term outlook

 

The solid growth rate we have seen this year has improved our outlook. In our base case, we anticipate that India will increase by 7.6% to 7.8% in the fiscal year 2024, then by 6.6% and 6.75% in the following two years.

 

Now that India’s economic growth is accelerating, the gap between actual GDP and potential (pre-pandemic GDP levels) is gradually narrowing. After election-related uncertainty passes, we expect private investments to pick up later this year. Also, global liquidity conditions are improving as Western central banks lower policy rates and soften their interest rate approach.

 

The synchronized global recovery is expected to increase exports and stimulate investment and consumption, leading the Indian government to review expenditure, reduce fiscal deficit, and encourage private investment.

 

Inflation fears are expected to persist due to high demand and rising food costs, but prices may decrease as private investment strengthens the supply side. Nevertheless, prices are likely to remain above the Reserve Bank of India's target level of 4% due to strong economic activity.

 

After the outbreak, Indian consumers spending habits remained low, and recovery was uneven due to the ongoing effects of the pandemic and international turmoil. Despite a significant increase in economic activity, consumer trust has only recently started to recover and is still below pre-pandemic levels.

 

Last words: Consumers in India are growing more aspirational

 

Consumer behavior in India is clearly shifting toward aspirational spending, as is the case with any country experiencing increasing economic success.

 

The expanding middle class has led to increased spending power and a desire for luxury goods and services in India. Income growth significantly impacts demand for luxury products, as reflected in Engel's rule. According to this rule, as income rises, demand for essential items like food stabilizes, while demand for luxury goods experiences a pronounced increase.

 

India's consumer market is expected to become the third biggest in the world by 2027, with nearly one in two households projected to fall into the high or upper-middle-income brackets by 2030.