India Economic Pulse

We are pleased to present the latest edition of EY’s 'India Economic Pulse', decoded by our Tax and Economic Policy Group. This edition underscores the enduring resilience of the Indian economy, distinguishing itself as the fastest-growing global economy despite a period of global economic downturn.

Key highlights:

1. Robust growth: India's economy continues to show resilience, growing at a rate of approximately 8.4% in Q3 of FY24, surpassing expectations. This growth is driven by factors such as strong tax revenue collections, increased government capital spending, firm domestic demand (including rural demand), and growth in manufacturing and construction sectors.
2. Sectoral performance: The manufacturing sector saw significant growth of 11.6% in Q3 of FY24. Additionally, infrastructure, real estate, and construction sectors are experiencing momentum, with key segments like steel and cement witnessing double-digit growth.
3. Domestic demand: Various indicators such as automobile sales, passenger traffic, robust GST collections, rising electricity demand, and growth in household credit point towards sustained domestic demand. Lower demand for MNREGA work coupled with recovering rural demand suggests improving rural sentiments.
4. Macroeconomic stability: Stable repo rates, government bond yields, exchange rates, and healthy foreign exchange reserves indicate macroeconomic stability.
5. Challenges and concerns: Despite the overall positive outlook, there are areas of concern. Declining non-oil merchandise exports, moderated service exports, and reduced foreign investments highlight challenges in the external sector. Sluggish private investment, as reflected in stagnant FDI, VC/PE investments, and credit growth to manufacturing, underscores the need for acceleration in the private capex cycle.
6. Global economic context: While global growth is projected at 3.1%, which is below historical averages, there are signs of resilience with moderating inflation and positive service/manufacturing PMIs.
7. Outlook: GDP growth for FY24 is expected to be 7.6%, surpassing estimates by global agencies.

Overall, while India's economy is performing well amid global challenges, addressing concerns such as declining exports and sluggish private investment will be crucial for sustaining growth momentum in the future.