Increasing Growth Rate in India
Current Situation:
- The International Monetary Fund recently raised its prediction for India’s GDP growth to 6.3% for 2023–2024, up 40 basis points from its April estimate. The 6.5% prediction from the RBI has not changed.
- Even though the most recent geopolitical crisis in West Asia might have opened a Pandora’s box, we still think the Indian economy could expand more quickly than anticipated. The growth rate for India is expected to be 6.7% for the entire year.
The possible four causes of India’s economic expansion
- Due to 36% shortfall rains in August, the overall rainfall throughout the monsoon season was 6% less than anticipated; nonetheless, the spatial distribution is quite uniform. 29 states and UTs saw normal to above-average rainfall out of 36. Better growth in the agriculture industry will come from it.
Second, there is still a push for capital spending:
- As of the current year’s first five months, the states’ capital expenditures represent 25% of the projected objective, while the center’s stands at 37%.
- Almost all states are going beyond with their spending, with Andhra Pradesh topping the charts at up to 51% of the allocated amount.
- It will cover infrastructure bottlenecks and advance the economy’s use of EoDB.
- Third, the comprehensive registration of new companies indicates a strong desire for expansion.
- In the first half of 2023–24, there were about 93,305 registered corporations, down from 59,241 five years earlier.
- It’s important to notice that, from 395 in 2018–19 to 622 in 2023–24 (a 58% rise), the average daily registration of new companies grew.
- It will contribute to the economy’s growth and job creation.
- Fourth, credit growth is still gaining traction.
- Since the beginning of 2022, the credit growth of all scheduled commercial banks (ASCBs) has been increasing annually.
- Up until September, aggregate deposits increased by 13.2% and credit increased by 20% (excluding HDFC, it was 15.3%, although it was still essentially comparable to FY22).
- Because of the holidays, we anticipate that credit demand will continue to be strong in the upcoming months. As a result, it will encourage demand and investment within the economy.
- Financial inclusion’s function in formalising lending facilities that promote potential for economic growth.
- Reputable borrowers can continue to access the financial system through repeat loans under government programmes like PM SVANidhi, given that they have a solid credit payback history.
- Through initiatives such as the Jan Dhan Yojana, banks are able to provide credit to households that were not part of the official banking system. Furthermore, these households’ goals have grown significantly, so there’s no reason to be concerned about these changes.
- Furthermore, this steady, healthy expansion in credit might keep accelerating the nation’s economic pace.
Context:
- The ratio of credit to nominal GDP may reach 1.7 times in 2023–24, up from 0.93 times in 2022–23. This would increase the flow of capital to the whole economy and support the momentum.
- India is therefore in for a prolonged period of growth if the signs from the banking sector are considered the new normal.
