Indian Economy: 2023 Recap and 2024 Expectations

There is an increasingly positive notion across the world that this is the decade when India is going to become a major economic power. A few of the metrics by which we can judge whether this is true or not include our real GDP, per capita GDP, defence expenditure, infrastructure, energy and food security, etc. While India may have room for improvement in these metrics, the year 2023 showed us that we are not too far from this goal either.

Let us, therefore, take a moment to recapitulate how the past year went for our economy and what the major challenges and opportunities that await us in the near future are. First, we can go over some of the key data points on what our economy experienced in the past year.

Important Data Points To Begin With

• GDP growth

India remains the 3rd largest economy in the world as per GDP in PPP terms after China and the USA. Its year-on-year GDP growth was 7.8% in the April-June quarter and 7.6% in July- September. This placed India as one of the highest growing economies, especially among the major nations, ahead of the US and China. 

However, in absolute terms, both the USA and China added more to their GDP than India in the past 3years. While the USA and China added $4.08 and $3.76 trillion, India added only $0.55 trillion in 2020-2022.

• Inflation 

While 2023 started out with slightly higher inflation than the Reserve Bank of India’s upper limit of 6%, it fell to 4.70% in April and remained below 5% till July, when it increased to 7.44%. Since then, the inflation rate has been slowly decreasing. The occasional rise in prices was partly because of a weak kharif harvest, causing inflation in the food prices.

Despite the spikes in inflation, throughout the year, the repo rate remained unchanged at 6.50%. The Reserve Bank of India has projected the CPI inflation of India to be at 5.4% for FY 2023-24, with Q2 expected to see 6.2%, Q3 5.7%, and Q4 5.2%. 

• Exchange rate 

The 6-currency nominal effective exchange rate strengthened from 87.59 in April 2023 to 83.71 in December 2023. However, the Indian rupee’s value in relation to the US dollar remained low, having reached around ₹83 per dollar in 2022 from ₹69 per dollar in 2019.

• Stock Market

The Indian stock market has seen a fairly bullish run this year as the Nifty 50 went from 18,197 on its first closing on January 2, 2023 to 20,267.90 on the closing of December 1, 2023. 

• IIP

The IIP, or the Index of Industrial Production, shows the status of production levels in the key sectors of the economy, such as electricity, steel, coal, etc. For the month of January 2023, the Quick Estimates of Index of Industrial Production (IIP) with base 2011-12 stands at 146.5. The same figure stands at 141.6 for September 2023, showing a slight fall. 

What Has Been the Government’s Strategy?

We can get a rough idea about the government’s strategy in all of this from the Union Budget 2023-24. It proposed to spend ₹45 lakh crore in the financial year. Out of the total expenditure, revenue expenditure is estimated to be ₹35 lakh crore. Of the revenue receipts, 41% has been interest expenditure. 

Changes in Expenditure Levels

There has been an increase in the outlay for capital expenditure, estimated to be ₹10 lakh crore, a 37.4% increase from the revised estimates for 2022-23.  This increase in capital expenditure is driven partly by the growing transport infrastructure and capital loans to states.

Specific sectors which saw an increase in expenditure were defence, education, water (termed as Jal Shakti), health, housing, road transport, etc. Some segments, like rural development and food and public distribution, saw a fall in expenditure, partly because schemes introduced during COVID are no longer needed as much.

Major Global Events That Influenced the Indian Economy in 2023

While there were many events that captured our imagination in 2023, the following two are among the ones that stood out.

1. Rise of AI – While the development of AI or artificial intelligence has been in the works for years, or even decades now, the sector recently saw a boom at a global level with the introduction of ChatGPT, a natural language processing software developed by OpenAI. This showed the average human how large pieces of refined text can be produced by AI software. It led to a spurt in the number of AI-driven B2B and B2C software, attracting a lot of both attention and investments.
2. Increasing Fed rates – During 2022 and 2023, the Federal Reserve Bank of the USA kept increasing its interest rate in response to the nearly 40-year high inflation rate. Between February and July of 2023, the federal funds rate was changed 4 times, increasing by 25 bps each time.

What To Expect in 2024?

According to the PHD Chamber of Commerce and Industry, India will become a $4 trillion economy in 2024, and its per capita GDP will increase to $2,800.  

As per a Goldman Sachs report, there might be certain supply shocks along with stable growth, both of which are likely to contribute to keeping the inflation rate above the central point of the RBI’s target of 4.0% in 2024. Goldman Sachs forecasts the headline CPI inflation to decline to 5.1% year-on-year. In the first half of 2024, they also expect consumption growth to be driven by subsidies and transfer payments.

The report says that a corpus of nearly $600bn of foreign exchange reserves should continue to allow the RBI to intervene promptly and keep the USD/INR stable. However, higher oil prices, slower growth in trading partners, and steady domestic growth may slowly increase the current account deficit to 1.9% of GDP in 2024 and will put a strain on the aforementioned reserves. 

India is also about to witness the 2024 general elections. The stock market may see a major boost in these upcoming national elections. In fact, Goldman Sachs also expects investment growth to rebound after the election-related uncertainty is over, i.e. in the second half of 2023.

Indian private sector has been deleveraging, i.e. reducing its debt, and is poised to increase its capital expenditure. The Indian banks are expected to remain healthy in the coming months, showing systemic stability. 

Final Words

The Indian economy has maintained a strong growth rate while also keeping its financial risks low. If you want your finances to experience stable growth, you can consider investing your money in its growth story via financial instruments such as stocks, mutual funds, bonds, etc.