Saturday, April 13, 2024



India Flag

GDP: USD3416.6bn
Population: 1417mn
Form of state: Federal parliamentary republic
Head of government: Narendra Modi (PM)
Next elections: 2024, general

India is projected to become the second-largest economy in the Asia-Pacific region by 2030. The Indian economy has performed well among emerging economies, with an average growth rate of 6.5% over 2000-2019 and 6.9% over 2010-2019, which is in line with emerging Asia. However, the Covid-19 pandemic has hit India badly, and the economy was already vulnerable at the end of 2019. This has resulted in one of the deepest contractions in GDP in the Asia-Pacific region. Although there has been some recovery, it has been delayed by a renewed outbreak of Covid-19, particularly with the Delta variant.

Despite moderate growth in 2022, India’s economy has remained resilient and outperformed the average growth rate among emerging and Asian economies. It is expected to grow by 6.9% in FY23-24 and 6.3% in FY24-25, given the moderating domestic and external demand. Public spending, foreign investment, and easing inflation will act as tailwinds. Over the long term, India is expected to become the second-largest economy in the Asia-Pacific region by 2030. There are five game-changers that could affect India’s mid-term economic outlook: foreign investment, trade, human capital, climate change, and geopolitics.

Various public policies have been implemented to mitigate the negative impact of the Covid-19 crisis. Although the fiscal deficit has slightly declined, public spending remains high to support energy, transport, and infrastructure, as well as measures for households. This spending is expected to continue until the general election in April-May 2024.

Regarding monetary policies, the Reserve Bank of India (RBI) increased interest rates by 250 basis points between May 2022 and February 2023 to control inflation. However, we anticipate that the RBI will start reducing the policy rate in the second half of 2024, which will help alleviate financial pressure on households and businesses.

Structural vulnerabilities in check but to keep in mind

The risk of financing appears to be low in the short term, according to the indicators. However, it is crucial to monitor specific indicators in the medium run. Public finances, which currently have a large fiscal deficit that is gradually decreasing, need to be observed. Along with this, the financial sector and non-performing assets require close monitoring, as well as the current account deficit and moderate foreign direct investment inflows. It is essential to be cautious of the efficiency of policy stimulus on both fiscal and monetary sides.

Public debt has risen significantly due to the Covid-19 crisis and seems to be stabilizing at around 80% of GDP, which is higher than the pre-pandemic level of approximately 70%. Since 2022, the resilience of the financial sector has improved, but it still needs close monitoring. The system-wide gross non-performing loans ratio has decreased from 5.9% in March 2022 to 3.9% in March 2023. However, banks must reinforce their capital and liquidity positions to prepare for potential stress.

The current account deficit is expected to reduce but remain at around 1% of GDP in the next few years. Additionally, foreign direct investment inflows are moderate, but India could attract a large amount of foreign investment if it implements adequate liberalizing reforms in a favorable geopolitical environment.

Business environment and political developments

India’s business environment is ranked close to the middle among 185 economies, and there has been little change in this regard over the last few years. The 2022 Heritage Foundation’s Index of Economic Freedom survey places India at rank 131 out of 184 economies, which is a slight decline from the 123rd rank in the 2021 survey.

Despite good scores in tax burden, government spending, trade freedom, and monetary freedom, India still has weaknesses in terms of fiscal health, investment freedom, financial freedom, and government integrity.

The World Bank Institute’s annual Worldwide Governance Indicators survey indicates that India’s scores since 2019 have stayed the same in controlling corruption, improved slightly in regulatory quality and the rule of law, and are in the 45%-55% percentile range. India’s Environmental Sustainability Index ranks it at 175 out of 202 economies, reflecting better performance in energy use per GDP and CO2 emissions per GDP. However, it has weaknesses in terms of climate change vulnerability, renewable electricity output, and the recycling rate.

The ruling Bharatiya Janata Party (BJP) is likely to remain in power and renew its term in the upcoming general election in April-May 2024. Prime Minister Narendra Modi, who has been in power since 2014, is expected to remain the dominant figure in the government. Given his strong popularity and the lack of an effective political opposition, the stability of the government is unlikely to be threatened in the coming years. However, it’s worth keeping an eye on the BJP’s potential intensification of its Hindu nationalist agenda, which could result in communal clashes, although it’s unlikely to cause significant social unrest.


  • Stable democracy, with peaceful changes of government
  • Large internal market, providing some insulation from global business cycle
  • Successful diversification into manufacturing and services
  • High annual GDP growth
  • Low external debt relative to earnings, repayment capacity and reserves
  • Favorable demographics


  • Structural weaknesses, including inadequate infrastructure and current and fiscal account deficits
  • Financial risk to monitor, namely balance sheets of banks and non-bank financial institutions
  • Weak structural business environment (slowly improving)
  • Poverty and uneven income distribution, low literacy rates, and fierce brain drain
  • Vulnerable to natural disasters
  • India-China relations to remain tense in part due to border disputes
CEOWORLD magazine - Insights - India