After a lull of 2-3 years following the pandemic, Indian economy turned around a corner in 2023, having laid the foundation in the previous years. The fastest growing major economy ends with several tailwinds as it steps into 2024 to accomplish new feats
As we step into 2024, the new year, 2023 stands as a truly momentous year for the Indian economy. The country crossed several milestones and now has the momentum to conquer new feats. We are the fastest growing major economy and with inflation in control, we are looking at a sunny side in 2024.
But, to summarize the year gone by, we will look at most notable achievements. These achievements are not necessarily in the order of importance.
India retained the top spot as the fastest growing economy in the world with gross domestic product (GDP) growth of 7.6 per cent for the July-September quarter, which was higher than estimated. India’s GDP has picked up on higher government spending and buoyant industrial activity.
It was much higher than the estimates of 6.5 per cent projected by the Reserve Bank of India (RBI).
The numbers are significant compared to the corresponding period of the last financial year when India reported a GDP of 6.2 per cent. However, it was lower from the April-June quarter GDP expansion of 7.8 per cent.
Last year, India overtook the UK as the fifth largest economy in August in terms of nominal gross domestic product (GDP) at USD 3.73 trillion. It stands at the third spot in terms of the purchasing power parity. India is currently only behind the US, China, Japan and Germany. It just build-on where it left 2022.
Direct Tax Collections
The initial toil is now paying off rich dividends. When the government took over in 2014, its focus was always on increasing its tax base rather than extracting more money out from the same pool of tax payers. What it did was plugged leakages, revamped the laws improved collection efficiencies. Over the years, the size of the pool has only grown.
According to the data released by the Ministry of Finance, the total number of income tax returns (ITRs) filed for assessment year 2023-24 (or financial year 2022-23) as of 31 July 2023 was more than 6.77 crore, 16.1 per cent more than the 5.83 crore ITRs filed for AY 2022-23 as of the same day in 2022.
In terms of tax collections, the centre collected nearly Rs. 13.7 lakh crore in corporate and personal income taxes till the middle of December which was up by over 20 per cent year-on-year. The direct tax collection target is at Rs 18.2 lakh crore for FY24. This is 10.5 per cent higher than what the government collected in FY23.
The goods and services tax collections remain robust, dispelling notions of a slowdown. The consumer spending has remained strong for most past of the year with collections surpassing the Rs 1.5 lakh crore make of consecutive months. In November, the collections were to the tune of Rs 1.68 lakh crore slightly lower than 1.72 lakh crore in October. The high numbers were on account of festive spending.
GST has been one of the most telling tax reforms. Although it started amid controversies and teething issues, over the years it has played itself well, improvising itself according to the requirements.
The efforts have delivered the fruits with 2023 standing out to be the biggest performing year. In April, monthly GST collections were at their all-time high of Rs 1.87 lakh crore. in April, has remained robust subsequently, with collections in six out of the eight months up to November remaining above Rs 1.6 lakh crore. The monthly average GST receipts is Rs 1.66 lakh crore.
This has been a truly remarkable year for Indian manufacturing with domestic sector spanning it reach to newer areas in defence and electronic manufacturing. India is also aiming to become a global semiconductor manufacturing hub and the foundations are being laid towards achieving that goal.
After ushering into becoming a mobile revolution, India has graduated into manufacturing laptops, personal computers, tablets and servers.
To give manufacturing a push, the production linked incentive schemes (PLI) of the government has been a great initiative and is incentivising 14 sectors. According to the Ministry of Commerce, the PLI schemes for 14 sectors have attracted over Rs 95,000 crore in investment till September this year. The government has approved 746 applications till November 2023 under these schemes.
The government had announced an outlay of Rs 1.97 trillion for the PLI schemes in its Budget 2021-22. The incentives have been extended in electronics, telecommunication, pharma, white goods, defence, semiconductors, agri, auto and textiles among others.
India’s manufacturing PMI has largely been on an expansionary mode this year which is a reflection that the industrial activity has stayed strong for the calendar year. In November it was reported at 56. A number above 50 is considered as expansion while below 50 is seen as contraction.
Country’s consumption story was in a goldilocks situation and that reflected even in the GST collections. The aspirational India drove bigger cars, bought bigger homes and spent more on travel and tourism.
Fetish for bigger and featured-laden cars and two wheelers has driven auto companies out of the red. The industry was in abysmal shape even before the pandemic and in the last two years, the things have turned brighter. With multiple launches every month, the consumers are spoilt for choices.
After the Covid, the need for bigger homes and better home infrastructure lifted the real estate sector out of years of deep slumber. That created environment for people to buy bigger and luxurious homes. In 2023, the affordability improved which pushed the home sales.
According to Knight Frank India, homes became more affordable in 2023 as compared to 2022 as reflected by affordability index – a ratio of equated monthly instalments to income. The sales in the top seven cities touched an all-time high of 476,530 units. It was 31 per cent higher than 364,870 units in 2022.
The consumption on other discretionary spends like gold, equity and mutual funds also gained substantially
The travel and tourism also prospered this year there by filling the government coffers. According to World Travel & Tourism Council (WTTC), the industry’s contribution to the GDP is projected at Rs 16.5 lakh crore in 2023.
The government’s priorities have been aligned with thrust on capital expenditure to build capacities and climb down in government subsidies. The government’s spending has been on historic highs, while the share of subsidies has fallen sharply to decadal lows.
Next year’s turnaround will ride on lower inflation. We are at the declining curve of inflation and unless anything goes awry, the time for global growth is expected to have arrived now. India will be among the key beneficiaries of this.
While the RBI has kept the inflation forecast unchanged with retail inflation projected at 5.4 per cent for FY24, the Q2FY25 projection is at 4 per cent which is the inflation target for the banking watchdog.
RBI has been at the top of its game and it was the first Central Bank to pause the policy rate at 6.5 per cent. While the interest rate regime remains high, the pause was a much-needed respite for people. The rates are expected to come down in the second half of next year and that will be a great relief for consumers.
Not all was hunky dory in 2023 as the service sectors have been witnessing some setbacks amid inflationary pressure in the initial part of the year. Intensifying competition and pressures in certain types of services were major spoilsports.
While the service sector showed expansion, the activity was at its lowest pace in November to 56.9 as compared to 58.4 in October according to S&P Global, India’s services Purchasing Managers’ Index (PMI). This was the lowest figure in 2023, so far. In January, services PMI was recorded at 57.2.
With the inflation issue now a thing of the past, things are expected to improve from here.