| India took a big economic leap this leap year: The country ended the fiscal year 2023 to 2024 with a big bang, surpassing all market estimates of GDP, with 8.15% year-over-year (YoY) growth. For three consecutive years, India’s economy has exceeded growth expectations (averaging 8.3% annual growth over this period) despite global uncertainties, driven by strong domestic demand and continuous government efforts toward reforms and capital expenditure. |
| Optimism prevails, as highlighted by a Deloitte pre-budget expectation survey, which shows high confidence among industry leaders in India’s continued robust growth. With prevalent signs of the rural economy rebounding, strong growth in manufacturing, robust bank balance sheets and credit growth, and stronger exports in services and high-value manufacturing, there is confidence that India’s underlying potential will help it outpace growth in the rest of the world. |
| Deloitte projects annual GDP growth to be between 7.0% and 7.2% in fiscal 2024 to 2025 and between 6.7% and 7.3% the following fiscal year as markets adapt to geopolitical uncertainties in their investment and consumption decisions. The global economy is anticipated to rebound synchronously in 2025, as major election uncertainties are resolved, and Western central banks possibly implement rate cuts as inflation concerns subside. India is likely to experience improved capital flows, boosting private investment and exports. Inflation concerns remain, but we expect them to ease in the latter half of the next fiscal year, barring any surprises from rising oil or food prices. |
| This quarter, we continue on our consumption story that we touched upon in the last edition of “India Economic Outlook.”Consumption spending has remained modest over the past five years despite overall strong GDP growth. The pandemic; high global and domestic inflation and consequent tightening of financial conditions; and the effects of poor agriculture output on rural demand seem to have capped private consumption growth in India. But amid all this, there is a silver lining: We notice distinct and broad-based shifts in the country’s consumption patterns. |
| In the April edition of this outlook, we noted a significant shift toward increased spending on luxury and premium goods and services. We also pointed to the possibility of this trend amplifying with the growing middle-income class. In this piece, we take a deep dive into state- and product-level data published by the Household Consumption Expenditure Survey (HCES 2022–23) and identify spending categories across various Indian states. |
| While urban households collectively outspent their rural counterparts over the past decade, the latter has quickly caught up in spending on discretionary durable goods (including automobiles and electric and electronic goods) as well as services. There is a broad-based shift in the composition of consumption toward more nonfood items, reflecting changing lifestyles and preferences that are here to stay. The declining share of spending on education is a concern though, especially in urban spending where the share declined by 2.43% since 2009–10. |
| Subsequently, we identified opportunities for businesses based on emerging spending patterns. However, we also cautioned about regional disparities in consumption and inflation hindering sustainable and widespread growth in household consumption, which the government has addressed in the recent Union Budget 2024–2025 that was tabled on July 23, 2024. |
| Decoding the fourth quarter of fiscal 2023 to 2024 |
| India’s GDP grew 8.15% YoY over fiscal 2023 to 2024, with a sharp growth of 7.8% in the fourth quarter of 2023, beating the government’s second advanced estimate of 7.6% and Reserve Bank of India’s (RBI) estimate of 7.3%. Fourth-quarter economic activities pointed to three interesting trends: improvement in private consumption, exports, and manufacturing. |
| Firstly, private consumption spending fared better last year than reported earlier. There were upward revisions to the third-quarter data, suggesting consumers spent more generously in the quarter of festivals and the Cricket World Cup than previously believed. Third-quarter GDP growth was revised to 8.6%, up from the earlier estimate of 8.4%, on the back of a 50-basis point upward revision of private consumption spending. That said, private consumption growth remained capped at 4.03% over fiscal 2023 to 2024, owing to modest growth in the agriculture sector and persistent inflation that weighed on rural demand. |
| Secondly, Indian exports surged by an impressive 8.1% YoY in the fourth quarter—the highest this fiscal year. Merchandise exports improved remarkably that quarter (even though the quarter’s performance could not prevent annual merchandise export growth from contracting). Notably, high-value manufactured goods like pharmaceuticals, chemicals, engineering products, and electronics achieved record export levels this quarter, propelling overall growth in merchandise exports in the high value-added segment. This positive trend bodes well for India as it aims to strengthen its integration into the global value chain and increase its exports to US$2 trillion over the next six years. Growth in the traditional basket of exports, however, continued to decline. |
| And finally, 8.9% growth in manufacturing that quarter points toward sustained momentum. The index of industrial production also hinted at a strong revival in the sector. |
| A few other factors affecting the growth numbers observed in the last quarter are: |
- Modest investment: The momentum in gross fixed capital formation slowed to 6.5% YoY last quarter reflecting a temporary weariness due to national elections in India and other major countries, the escalation of geopolitical tensions in Central Asia, and the economic slowdown in China.
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- Demand exceeding supply: The divergence between GDP and GVA (gross value added) narrowed marginally last quarter to 1.5% relative to the previous quarter’s 1.8%, but the gap continued to remain high. This possibly indicates that the demand side (as measured by the expenditure approach) is growing faster than the supply side (denoted by the production approach).
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- Fiscal deficit defying expectations: The fiscal deficit narrowed to 5.63% of GDP, lower than both initial budget estimates (5.9%) and revised estimates (5.8%).
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| For the full document click the link below:
India: Economic Outlook |
