Forum Views - May 2024

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Dr. Vispi Rusi Bhathena, PhD (h.c.)

Chief Executive Officer

Dr. V. Aditya Srinivas

Chief Operating Officer

and Chief Economist

The Intersection of Politics and Economy: India's Path to a $10 Trillion Economy: As the countdown begins towards the

eagerly anticipated nationwide elections in the world's largest democracy, India finds itself at a pivotal moment in its

economic journey. The upcoming election results in June are not just about political shifts; they hold the key to shaping

policies that will chart India's course towards becoming a $10 trillion economy. Economists and market participants are

keenly observing these developments, recognizing the potential influence on economic growth and stability.

Examining the Current Economic Landscape: Despite certain global headwinds, India's economy stands on a robust

footing. Recent economic indicators showcase promising growth trends, bolstering optimism for the nation's economic

prospects. However, these developments unfold against a backdrop of global market dynamics influenced by major

economies such as the United States and Japan. In the United States, the latest data reveals a significant uptick in inflation

to 3.2%, extinguishing hopes for a rate cut in March 2024. The Federal Reserve, confronted with mounting inflationary

pressures, maintains a firm stance on interest rates, which currently stand at 5.25%.The prospect of rate cuts is contingent

upon inflation moderating towards the Fed's 2% target zone, with any potential adjustment likely towards the latter part

of 2024.

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Conversely, Japan's recent decision to raise interest rates to 0.1% after 17 years aims to address inflationary concerns.

This move, while impacting borrowing costs for consumers and businesses, has also triggered a weakening of the yen

against the dollar. This fluctuation benefits exporters but poses challenges for consumers facing increased import costs.

In India, the Reserve Bank of India (RBI) has adopted a cautious approach by maintaining the repo rate at 6.5%. The RBI's

'wait and watch' strategy hinges on monitoring inflation trends closely before contemplating any policy adjustments.

Concerns persist about potential inflationary upticks in the coming months, underscoring the central bank's prudent

stance.

Positive Economic Indicators: India's core sector, encompassing vital industries like coal, crude oil, steel, and cement,

registered a robust growth rate of 6.7% in February, marking a notable improvement from January's figures. This

expansion underscores the resilience of India's industrial base and its capacity for sustained growth. Furthermore, global

financial institutions like Morgan Stanley have revised India's GDP growth forecasts upwards, citing the nation's inherent

strengths and stability. Projections for FY25 reflect this confidence, with GDP growth estimates revised to 6.8% from

6.5%. The current fiscal year (FY24) is also poised for robust growth, with estimates revised upwards to 7.9%.

Navigating Dynamic Economic Realities: As stakeholders await the election outcomes and monitor global economic

dynamics, it is evident that India's economic landscape is subject to multifaceted internal and external factors. The

interplay between policy decisions, market forces, and geopolitical developments will continue to shape India's economic

trajectory. The road to a $10 trillion economy necessitates astute policy formulations that balance growth imperatives

with fiscal prudence. As India positions itself as a global economic powerhouse, policymakers face the challenge of

leveraging inherent strengths while mitigating external risks.

Looking Ahead: In the coming months, as election results unfold and global economic conditions evolve, the narrative of

India's economic narrative will unfold. It is imperative for stakeholders to remain attuned to developments that shape

India's economic future. Stay tuned for further analysis and updates as India navigates through these pivotal times on its

transformative economic journey.

Conclusion: The confluence of politics and economics in India underscores the intrinsic link between governance and

economic outcomes. As the nation aspires to achieve monumental economic milestones, the upcoming elections serve as

a crucial juncture that will define India's trajectory towards realizing its $10 trillion economic vision.

FORUM VIEWS, MAY 2024 edition

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