Economy: India outperforming peers, may grow at 6.2% in 2024, says the UN

Virendra Pandit 

New Delhi: A United Nations report has said India is projected to grow at 6.2 percent in 2024, supported by robust domestic demand and strong growth in the manufacturing and services sectors.

The UN World Economic Situation and Prospects (WESP) 2024 report, launched on Thursday, said the gross domestic product (GDP) in South Asia is projected to increase by 5.2 percent in 2024, driven by a robust expansion in India, which remains the fastest-growing large economy in the world.

Mainly supported by resilient private consumption and strong public investment, India’s growth is projected to reach 6.2 percent in 2024, slightly lower than the 6.3 percent estimate for 2023, and increase to 6.6 percent in 2025.

While manufacturing and services sectors will continue to support the economy, erratic rainfall patterns will likely dampen agricultural output, it said.

Indian economy again outperformed its peers, not just this year but the last few years, Chief of the Global Economic Division Monitoring Branch, Economic Analysis and Policy Division (UN DESA) Hamid Rashid told reporters. “India’s economic growth has consistently remained over six percent and we believe this will continue in 2024 and 2025 as well.”

Although inflation was relatively high for India, it didn’t have to raise rates as much and inflation has come down quite a bit. That has allowed the government to sustain the fiscal support that it needed, he said adding that he didn’t see significant fiscal adjustments or fiscal retrenchment in India.

Overall, domestic consumption is growing, household spending has grown, and the employment situation has improved quite a bit. “So, we are very optimistic about India’s growth outlook in the near term.”

Asked about the factors holding back India’s economic growth, Shantanu Mukherjee, Director of the Economic Analysis and Policy Division, cited India’s GDP growth rates of four years from 2022 to 2025 and said: “I’m not sure that 7.7 percent, 6.3pc, 6.2pc, and 6.6pc is exactly holding something back.

In a kind of abstract sense, one would run the risk of overheating an economy if you grew at much faster rates at the size and complexity of India, he said.

Mukherjee noted that New Delhi has recently modified its tax collection systems which helped and gave a more stable playing field for businesses and other initiatives to progress. Highlighting risks facing the economy, he said some of those risks are more global.

India remains a very largely farm-based economy in many senses. And being in the tropics, it is very vulnerable to climate change. El Nino is a recurrent phenomenon but exacerbated by climate change. So should there be a shock to agricultural production, this could cause a major disruption in the economy, Mukherjee said.

One of the reasons that the consumer price index (CPI) in India remained relatively within bounds, allowing the central bank to not raise interest rates too much, was that fuel and food prices remained relatively stable. So, any shock on those lines would boomerang through the economy, he said.

The CPI in India is expected to decelerate from 5.7 percent in 2023 to 4.5 percent in 2024, staying within the two to six-percent medium-term inflation target range set by the Reserve Bank of India (RBI).

The risk of a surge in inflation in the coming months cannot be ruled out, however, as potential increases in commodity prices and the adverse impact of climate events on food prices could disrupt the pace of disinflation, the report said.

The labor market situation in South Asia remained fragile in 2023 despite improvements in some countries.

In India, labor market indicators improved over the year, with labor force participation increasing in August 2023 to its highest rate since the onset of the pandemic, the report said, citing the RBI.

The unemployment rate averaged 7.1 percent in September, the lowest value in a year, with unemployment in rural areas falling despite weaker monsoon rains. Youth unemployment rates declined significantly during the first quarter of 2023 to the lowest value since the pandemic, it said.

The report also noted that the RBI has been cautious about opening the country’s financial markets and implementing appropriate risk management systems.

The UN report said global economic growth is projected to slow from an estimated 2.7 percent in 2023 to 2.4 percent in 2024, trending below the pre-pandemic growth rate of three percent.

This latest forecast comes on the heels of global economic performance exceeding expectations in 2023. However, last year’s stronger-than-expected GDP growth masked short-term risks and structural vulnerabilities, it said.

The better-than-expected performance for 2023 is driven mainly by large economies, notably the US but also Brazil, India, and Mexico, Mukherjee said.

The UN’s flagship economic report presented a somber economic outlook for the near term. Persistently high interest rates, further escalation of conflicts, sluggish international trade, and increasing climate disasters, pose significant challenges to global growth.

“The year 2024 must be the year when we break out of this quagmire. By unlocking big, bold investments we can drive sustainable development and climate action, and put the global economy on a stronger growth path for all,” UN Secretary-General Antonio Guterres said.