Amid rising geopolitical tensions, the Economic Survey 2024, tabled by Finance Minister Nirmala Sitharaman, highlighted that any escalation in the conflicts during the year may lead to supply chain disruptions, higher commodity prices and rising inflationary pressures.
Ahead of the Union Budget 2024, scheduled on July 23, the Economic Survey, a comprehensive review or annual report of Indian economy during the closed financial year, is tabled in the Parliament. The report is prepared by the Economics Division of the Department of Economic Affairs of the Finance Ministry under the guidance of the India’s Chief Economic Advisor (CEA).
Geopolitical conflicts heighten supply chain risks
“On the downside, any escalation of geopolitical conflicts in 2024 may lead to supply dislocations, higher commodity prices, reviving inflationary pressures and stalling monetary policy easing with potential repercussions for capital flows,” the survey stated.
The report further stated that this situation could also influence RBI’s monetary policy stance. “The global trade outlook for 2024 remains positive, with merchandise trade expected to pick up after registering a contraction in volumes in 2023. Conversely, increased fragmentation along geopolitical lines and renewed thrust on protectionism may distort merchandise trade growth, impacting India’s external sector,” it said.
Volatile financial markets
The Economic Survey further noted that global financial markets have scaled new heights, with investors betting on global economic expansion. “However, any corrections in the elevated financial market valuations may have ramifications for household finances and corporate valuation, negatively impacting growth prospects,” it said.
Government initiatives could boost hiring in IT sector
Hiring in the information technology sector had slowed down considerably in FY2024, and even if hiring does not decline further, it is unlikely to pick up significantly, the Economic Survey observed.
“However, leveraging the initiatives taken by the government and capturing the untapped potential in emerging markets, exports of business, consultancy and IT-enabled services can expand,” it said.
The survey further noted that despite the core inflation rate being around 3 per cent, the RBI, with one eye on the withdrawal of accommodation and another on the US Fed, has kept interest rates unchanged for quite some time, and the anticipated easing has been delayed.
Indian economy on growth trajectory
Domestic growth drivers have supported economic growth in FY2024 despite uncertain global economic performance, the survey stated.
“While merchandise exports are likely to increase with improving growth prospects in AEs, services exports are also likely to witness a further uptick. A normal rainfall forecast by the India Meteorological Department and the satisfactory spread of the southwest monsoon thus far are likely to improve agriculture sector performance and support the revival of rural demand,” it said.
The survey further stated that structural reforms such as the GST and the IBC have also matured and are delivering envisaged results. Considering these factors, the Survey conservatively projects a real GDP growth of 6.5-7 per cent, with risks evenly balanced, cognisant of the fact that the market expectations are on the higher side.
