There are multiple channels through which an open economy can get impacted due to changes in the global markets. The economy is expected to grow at 6.3 per cent in the financial year 2023-24 (FY24), according to the latest Economic Outlook Survey released by Federation of Indian Chambers of Commerce and Industry (FICCI). Contributing factors would be robust urban demand, uptick in private investment over government’s front-loading of capex, pick-up in real estate and the festival season. Prof. Vishwanathan Iyer – Senior Associate Professor and Director of Accreditation, Great Lakes Institute of Management, Chennai spoke on how global financial trends including Exchange rate impacts, trade deficits (or surplus) in goods and services, FDI’s and FIIs are among the direct channels that impact India’s corporate sector. The ‘spillover’ effect on the recipient economy is felt to the extent of the integration with the global financial markets.
India’s GDP touched the $3.75 trillion-mark in 2023 and the country has moved from the tenth largest to the fifth largest economy in the world. A feeling of general buoyancy is also echoed by the external agencies World Bank, IMF and Asian Development Bank about the expected growth rate for the ongoing fiscal year. This is despite the strong headwinds and slowdown in growth experienced by most of the countries around the world. IMF in its most recent World Economic Outlook update has indicated that overall global growth is expected to fall to 3.0 over the next two years; and that the tightening of monetary policy to tackle inflation continues to weigh on economic activity.
What are the key sectors that are expected to deliver the results for the India economy? Prof. Iyer said, “Government’s infrastructure push and defense manufacturing are expected to do the heavy lifting as far as the growth in the GDP is concerned. Government’s Gati Shakti initiative (National Master Plan for Multimodal Connectivity) and industrial corridor development are expected to be the key drivers in this context. While ‘Make in India’ initiative has come a long way in increasing the share of manufacturing (particularly electronics manufacturing) within India, its direct linkage with the exports is a function of the ability of the international markets to absorb. Hence, while growth in manufacturing is robust, it is mainly aimed at internal consumption.”
He further added, “Exports of Services on the other hand are improving and expected to contribute to the growth story. India’s BFSI story has been very special. There are three aspects to it. The first is about the fundamentals or the Core Balance Sheet of these entities. While the global financial system has been significantly impacted due to the recent banking turmoil in the U.S and Europe, the sector in India has been quite stable and resilient. The Gross and Net NPA ratios have fallen to a 10-year low of 3.9% and 1.0% respectively as per the March 2023 data. This also shows the ability of the banks to finance future both medium and long-term projects. The second aspect is that of making the sector inclusive. Nine years after the launch of the PM Jan Dhan Yojana, it has now become not just the fulcrum of implementation of all Government welfare schemes, but also the means to provide access to credit, insurance, pension and various other banking/financial services. The aspect is that of digitization of the access. With an upward 10 billion monthly volumes of digital payments, India has the highest Fintech adoption rate of 87 percent as opposed to the global average of 64%. Infact, 75 percent of all retail digital payments in India are done via UPI. The most recent example of acceptance of Indian UPI has been France thereby eliminating the need for carrying forex cards or cash while traveling.”
Sharing his analysis on the on-ground indicators, he said, “The GST collection (a hard measure) and Purchasing Manager’s Index (a perception measure) are pointing in the same direction. To quote the recent Morgan Stanley report on the Indian economy, PMI is at a 13-year high and real goods and services tax collections are 35 percent higher than the pre-COVID levels. Passenger vehicle sales and service exports are 131 percent and 184 percent of pre-COVID levels. These broader trends can be further confirmed from the recent Q1 results for FY2023-24. Out of the results declared for about 225+ companies so far, a healthy jump in the YoY growth of Revenues, Gross and Net Profit can be seen across multiple sectors. Listed companies across the sectors of Manufacturing, BFSI, Consumer durables, FMCG, Electricals, Software & IT services, Diamonds & Jewellery, Real Estate, and Alcohol have shown considerable jumps in their YoY numbers. Such buoyant Q1 performance is expected to be carried through the financial year.”
Thus, while the global economy is still facing significant challenges, the Indian growth story continues to remain robust. Further, India’s financial sector also remains strong, buoyed by improvements in asset quality and robust credit growth.