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India’s labour markets have fully recovered to pre-pandemic levels, declining foreign direct investment (FDI) inflows are expected to rebound and economic activity that has been robust through October and November, is likely to remain strong in the final quarter of 2023-24, the Finance Ministry said on December 29.
Foreign investment inflows are helping Indian stock market indices climb new heights, and reflect broad-based optimism among domestic and foreign investors on India’s growth prospects, the ministry said in its half-yearly economic review that factors in November’s developments.
“Risks to growth and stability outlook mainly emanate from outside the country. Nonetheless, the Indian economy is expected to comfortably achieve a growth rate upwards of 6.5% in 2023-24,” the review asserted. Real GDP grew 7.7% in the first half of the year and the Reserve Bank of India has revised its 2023-24 growth projection to 7% from 6.5%.
Among the downside risks to India’s growth, the ministry identified “smouldering inflationary pressures in advanced countries and supply-chain disruptions re-emerging from persistent geopolitical stress”, terming geopolitics “an independent source of risk”.
India’s domestic economic momentum and stability, low-to-moderate input cost pressures and anticipated policy continuity are significant buffers against those risks, it averred, adding that while relatively high food inflation is a concern, it is a global phenomenon.
“The outlook for the employment sector appears bright, with employers intending to maintain or expand their workforce,” the ministry said, citing an improvement in the overall employment situation across sectors as per high-frequency indicators.
On gross FDI inflows which dropped 15.9% in the first half of the year, with equity flows dropping 23.4%, the ministry said the dip is not due to moderation in equity inflows but due to a rise in repatriation, which is being seen in other emerging market economies as well, including China.
“A major surge was witnessed in repatriation, which increased by 64.6%. This is likely due to hikes in interest rates in the developed economies, monetary tightening and general uncertainties prevailing in these economies due to geopolitical conflicts. Despite these short-term developments, FDI inflows to India are expected to rebound on account of strong rising growth,” the review underlined.
