In 2023, India's economic resilience surpassed market expectations. Issues such as the shift in the supply chain and questions around its manufacturing sector made this Asian giant a global focus. The Indian stock market hit record highs three times in 2023. Looking ahead to 2024, can this bull run continue?
Domestic Potential Attracts Global Deployment, While Consumption-Driven Structure Safeguards Growth Momentum
Looking back at India's rapid economic expansion, two major turning points led the economy to become the world's fifth-largest:
- Between 2002 and 2012, India, focusing on information technology outsourcing services, lagged China—which heavily invested in manufacturing. However, after initiating the "Make in India" policy back in 2014 and further easing foreign investment restrictions, India's economy began to catch up, surpassing China's GDP growth rate between 2015 and 2016. At that time, China faced challenges such as overcapacity, the U.S.-China trade war, and the failure of currency reforms. This marked the first turning point between the two Asian giants.
- The period from 2020 to 2023 can be considered the second major turning point. In 2021, India's GDP growth rate once again exceeded China's, and in April of the same year, it officially became the world's most populous country. China's population then declined year-on-year for the first time in 2022. From an economic standpoint, India is also expected to have a larger proportion of young people in its labour force in absolute terms than China before the end of ‘the twenties’.
With such advantages, India—a consumption-driven economic structure similar to the United States—maximizes its industrial upgrading and demographic dividend, allowing it to maintain impressive economic growth despite a slowdown in global trade, manufacturing and frequent geopolitical risks throughout 2023. Observing the details of expenditure, one key factor contributing to India's GDP growth exceeding expectations is the nearly 60% share of private consumption. Despite the high base pressure over the past two years, this category maintained stable growth rates of 2.83%, 5.97%, and 3.13% in Q1-Q3. The year-on-year growth of personal bank loans—a measure of consumer willingness to spend—reached 32.6% in October, hitting a new high. In September, the Consumer Confidence Survey Index also jumped, surpassing pre-pandemic levels, cementing the fact that household spending played a pivotal role in economic momentum. Another key factor comes from the second-highest share of GDP, gross fixed capital formation. With a year-on-year growth rate reaching 11.3% in Q3, this reflects the continued vibrancy in domestic investment demand. This is mainly due to accelerated investment by global manufacturing companies and the government's efforts to attract foreign investment through expanding infrastructure investments.
The latest IMF forecast indicates that India's GDP growth is expected to remain above 6.0% annually from 2023 to 2028, positioning it as the next economic powerhouse leading emerging markets and global growth. The ongoing supply chain shift and "Make in India" campaign are emblematic of this new era, as discussed in the next section.
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