The global economy experienced a significant slowdown in 2023, with growth decelerating to 3.2% from 3.5% in 2022. Advanced economies, particularly the Euro Area, UK, and China, faced major setbacks. Despite this, India emerged as a bright spot, achieving robust GDP growth of 7.6%, driven by fixed investments and infrastructure development, showcasing its resilience amidst global uncertainties.
Slower Growth in 2023
The global economy witnessed another year of deceleration in growth to 3.2% in 2023 (vs. 3.5% in 2022) with the slowdown being largely attributable to Advanced Economies, particularly the Euro Area and UK, and structural weaknesses in the Chinese economy.
Performance of Advanced Economies
Advanced Economies grew by 1.6%, with the US economy belying expectations of recession with a resilient performance in 2023, registering a growth of 2.5% (vs. 1.9% in 2022). Emerging Markets & Developing Economies grew at a relatively faster pace of 4.3% (vs. 4.1% in 2022), though remaining well below the long period average.
Contributing Factors to Economic Uncertainty
The recent conflict in the Middle East, extreme weather events, and the overlapping shocks of the past four years – including the COVID pandemic, Russia-Ukraine conflict, unprecedented inflation, and subsequent sharp increase in interest rates – have rendered the global macroeconomic environment highly uncertain and volatile.
Future Projections by IMF
Going forward, aggregate global economic growth as per IMF estimates is expected to remain subdued at 3.2% in 2024, well below the historical (2000-19) annual average of 3.8%. In 2024, Advanced Economies are projected to grow at 1.7% while Emerging Markets and Developing Economies are estimated to grow at 4.2%.
Key Monitorables in the Near Term
With expectations of inflation easing towards target levels, the timing of central banks pivoting towards policy easing in major economies remains a key monitorable in the near term.
India’s Economic Performance
India remained a relatively bright spot amidst the global slowdown, recording robust Real GDP growth of 7.6% in FY 2023-24. Growth was primarily driven by Fixed Investments led by the Government’s thrust on infrastructure creation and household investments in real estate.
Private Consumption and Sectoral Growth
Private Consumption, on the other hand, grew 3.0% – its slowest pace in two decades. The weakness in consumption was reflected, inter alia, in the muted volume growth of the FMCG sector (FY 2023-24 Volume growth approximately 3% vs. 7% p.a. average in the pre-pandemic period). While Industry and Services sectors grew by 9.0% and 7.5% respectively, growth in the Agri sector slowed to 0.7%, with adverse weather events impacting harvests.
Future Outlook for Indian Economy
Going forward, the Indian economy is expected to sustain its high growth trajectory in FY 2024-25 driven by strong momentum in Fixed Investments and a pickup in Private Consumption on the back of moderation in inflation, improvement in agri terms of trade, a good Rabi harvest, and normal monsoons.
Positive Indicators for Consumption Demand
Green shoots of recovery in rural markets, improving employment conditions, and sustained momentum in manufacturing and services sectors augur well for consumption demand in the near term.
Long-term Growth Potential of India
India continues to be acknowledged as one of the fastest-growing major economies in the world with significant headroom for growth over the medium and long term, benefiting from a slew of purposeful interventions over several years. A favorable demographic profile, increasing affluence, rapid urbanization, and accelerated digital adoption represent some of the key structural drivers of growth for the Indian economy.
India Government Initiatives
Multi-dimensional interventions undertaken by the Government of India towards the expansion of physical and digital public infrastructure, enhancing the competitiveness of the manufacturing sector, indirect/direct taxation and financial sector reforms, along with measures to promote ease of doing business, are expected to power the economy going forward.
Focus on Infrastructure and Agri-related Schemes
Stepped-up capital expenditure outlay and focus on infrastructure are expected to drive growth in domestic manufacturing, while focus on agri-related schemes is expected to boost farmers’ welfare and rural consumption demand, spurring a virtuous investment-employment-consumption cycle.
Policy Interventions for Inclusive Growth
As the Indian economy contends with uncertainties in the external environment, policy interventions focused on supporting sustainable livelihoods and fostering inclusive growth augur well for the economy. Structural support would need to be provided to sectors with large economic multiplier impact.
Importance of Domestic Agri and Wood-based Value Chains
In this regard, the development of robust domestic agri and wood-based value chains holds special importance in the Indian context given their enormous potential to contribute to national objectives.
Significance of the Agricultural Sector
The agricultural sector is pivotal to the Indian economy, employing about half of the country’s workforce. India is amongst the leading producers in the world of several agri-commodities, including milk, rice, wheat, sugarcane, cotton, pulses, spices, fruits & vegetables.
Challenges in Agri Exports
While India’s agri exports have grown strongly in recent years to a peak of US$ 53 billion in FY 2022-23, it witnessed a decline to US$ 49 billion in FY 2023-24 due to restrictions imposed during the year on agri-commodity trading led by concerns over food security and inflation on the back of geopolitical tensions and climate emergencies.
Enhancing Agricultural Competitiveness
India’s share of global agri-trade remains low at only about 3%. Enhancing agricultural productivity and value addition to international standards, while simultaneously improving market linkages, remain critical to enhancing the competitiveness of the agri sector and driving a significant increase in farmers’ income.
Climate Change and Agriculture
The farm sector faces enormous threats arising out of climate change, as evident from the growing number of extreme weather events such as droughts and floods. Given the vulnerabilities, it is critical to strengthen climate resilience and adaptability of the agri-food sector.
Climate-smart Agriculture
An exponential increase in crop production and productivity, backed by climate-smart agriculture, will be critical in meeting the growing needs of an increasing population and mitigating potential risks.
Shifts in Consumer Preferences
Evolving consumer preferences are also driving a shift towards nutritious and sustainably sourced food products. These developments accentuate the need to enhance the competitiveness of agri value chains to cater to the dynamic market requirements of the future.
India’s Role in Global Agriculture Transition
India, with its tremendous strengths in this sector, has a unique opportunity to play a leading role in this global transition and in forging an ecosystem of sustainable, regenerative, and climate-smart agriculture.
Promoting Farmer Producer Organisations (FPOs)
In this regard, the Government’s focus on promoting Farmer Producer Organisations (FPOs) holds immense potential to catalyse agricultural transformation by leveraging economies of scale, enabling sustainable agriculture, supporting market-led production, and creating larger market access.
Government Interventions in Post-harvest Activities
Government interventions encouraging private and public investment in post-harvest activities, including aggregation, modern storage, efficient supply chain, primary and secondary processing, marketing, and branding are steps in the right direction and will go a long way in unlocking the full potential of the agri sector.
(India CSR)
