India Continues to be Fastest Growing Major World Economy

By: Damini Mehta

Amidst the growth momentum in India, with a 7.6 per cent growth projection (NSO) for the ongoing financial year , major economies in the world are witnessing a strained period of economic expansion. In the backdrop of this, global Gross Domestic Product (GDP) growth is projected to slow from an estimated 2.7 per cent in 2023 to 2.4 per cent in 2024 according to the UN’s WESP 2024.

The United Nations’ (UN) World Economic Situation and Prospects (WESP) 2024 predicts a 5.2 per cent economic growth in South Asia in 2024 driven largely by a strong expansion in economic activity in India. The upwards trajectory of growth in India, which will create a positive impact on the neighboring regions, is said to be a result of the Union government’s focus on capital expenditure in the last few years. The same is also visible in the fiscal prudence adopted by the Union government in the Budget 2023-24. Retaining the government’s push for better public infrastructure, the budget allocation for capital expenditure increased by 11 per cent y-o-y to Rs 11.11 trillion for the upcoming financial year 2024-25. At the same time, the government has set a target to bring the fiscal deficit down from 5.8 per cent in 2023-24 to 5.1 per cent in FY 2025. The consistent push to capital expenditure is indicative from an 8.5 per cent CAGR growth in gross fixed capital formation over FY19-23.

Amidst the growth momentum in India, with a 7.6 per cent growth projection for the ongoing financial year, as per National Statistical Office (NSO), major economies in the world are witnessing a strained period of economic expansion. Monetary tightening, lingering policy uncertainties, geopolitical tensions and climate shocks have wrought havoc on small and big economies across the world. In the backdrop of this, global Gross Domestic Product (GDP) growth is projected to slow from an estimated 2.7 per cent in 2023 to 2.4 per cent in 2024 according to the UN’s WESP 2024. Economic growth will improve moderately to 2.7 per cent in 2025 but will remain well below the pre-pandemic growth rate of 3.0 per cent. While NSO predicts a 7.6 per cent GDP growth in FY 2023-24, according to WESP Indian economy is projected to grow at a much lower 6.2 per cent in 2024, slightly lower than the 6.3 per cent estimate for 2023, amid robust domestic demand and strong growth in the manufacturing and services sectors.

The report predicts a slow down in the United States, the largest economy in the world, after a remarkable performance in 2023. The US economy is expected to decelerate from an estimated 2.5 per cent in 2023 to 1.4 per cent in 2024 in spite of  the aggressive monetary tightening by the Federal Reserve to revive economic activity. 

The European Union is also grappling with a difficult situation as Germany enters a two-year long recession. As per the German national statistics office, “multiple crises” have affected the economy contributing to a 0.3% contraction in the national GDP in 2023. Higher interest rates and elevated living costs have impacted everyday lives in one of the EU's largest economies, dealing a blow to economic revival. Overall, the European Union’s GDP is projected to expand by 1.2 per cent in 2024, up from 0.5 per cent in 2023.

India’s neighbor, China, often pitted against it when it comes to economic comparisons, is also facing a hard time in reviving economic activity after the COVID induced slowdown. The country witnessed a mere 3.0 per cent growth in 2022 but turned a corner during the second half of 2023 as growth rate reached 5.3 per cent for the year. The country has also been facing a hard time attracting and retaining foreign investment as COVID induced lockdowns strained supply chains and raised a question mark on concentration of manufacturing in certain countries and regions. A weak domestic property market, outgoing investments and faltering external demand are slated to hold growth down to 4.7 per cent in 2024. 

Amidst a slowdown in most major economies of the world, India has emerged as a bright spot on the economic front. Economists have feigned optimism about India's long-term growth potential, anticipating minimum real GDP growth of 6 per cent to 6.5 per cent and nominal GDP growth of 10 per cent to 11 per cent over the next two decades, clearly surpassing comparable emerging market countries and developed countries. At 8.4%, the domestic economy expanded at its fastest pace in six quarters, a growth momentum which will most likely continue in the upcoming year too.