India’s economic outlook

A decade ago, India’s economy underwent a rollercoaster ride when the US Federal Reserve first hinted at raising policy rates and oil prices breached the US$ 90/barrel threshold. The current account deficit (CAD) in FY2013 was 4.7 percent of GDP (reaching 6.1 percent of GDP in one of the quarters), and the foreign exchange reserve stood at approximately INR 292 billion. Inflation stood at 10 percent and the fiscal deficit was around 4.5 percent. Alarmed by weakening economic fundamentals, investors quickly started withdrawing funds from the capital markets and consequently, the rupee depreciated significantly in 2013 against the US dollar, losing over 20 percent of its value.

Fast forward 10 years, India has turned its story around in the span of just one decade. India’s CAD was 1.9 percent of GDP in FY2023 and it is expected to be lower in FY2024. Foreign exchange reserves remain at a comfortable level of INR 568 billion which is equivalent to over 10 months of import cover. Current inflation stands at 5 percent. Digitisation, high-end manufacturing capacity, and improved competitiveness through exports, formed the three pillars of India’s decade-long journey that led to India’s transformation. Improving economic fundamentals have buoyed our outlook and we expect India to grow between 6.9 percent and 7.2 percent over FY2023–24 in our baseline scenario, followed by 6.4 percent and 6.7 percent over the next year.