Deloitte raises India's GDP growth target to 6.5%-6.8% in FY24

India's gross domestic product (GDP) is expected to grow in the range of 6.5% to 6.8% primarily due to festive spending in the coming months followed by higher government spending before the upcoming general elections mid-next year, according to Deloitte.

"We believe GDP growth will be over 6.5% next year as geopolitical uncertainties subside, and the global economy bounces back on a stronger growth path," writes Rumki Majumdar, director and economist at Deloitte India.

The audit and consulting firm revised its growth forecast for India from July 2023 when it said India is likely to grow between 6% and 6.3% in FY24.

According to IMF estimates, India will emerge as the world's third-largest economy by 2027, hopping over Japan and Germany, as its GDP crosses $5 trillion dollars. By 2047, India aspires to be a developed economy.

"India will need at least 6.5% growth to reach its first milestone in 2027 and about 8%–9% growth to reach the second in 2047," says Majumdar. "The buoyancy in the economy instills confidence that the country, at least in the short run, will likely achieve these numbers. The pace in the first few years will be critical for a sustained, fast-growth trajectory in the long run," Majumdar says.

India's growth rate in the first quarter of 2023-24 stood at 7.8%, close to the Reserve Bank of India's (RBI) estimate of 8.1%. India's economy in Q1 grew at the fastest pace in a year, on the shoulders of a boost in capital expenditure both at central and state levels, along with stronger consumption demand.

A large part of this growth came from strong domestic demand even during the time the global economic slowdown weighed on exports, which contracted by 7.7% after growing in double digits for eight consecutive quarters. While the contraction was broad-based due to moderating demand, the exports in electronics goods remained strong—its share in total exports has gone up from 3.4% to 7.2% in two years.

Navigating geopolitical uncertainties and the slowdown in the global economy, undoubtedly, will not be easy, according to Majumdar. She says that India will have to rely on its own domestic demand to firepower its growth, specifically, private consumption and investment spending.

The report says that what works in India's favour on the private consumption front is the size of its consumer base, the rising income, and the aspirations of its young population, which is the largest in the world.

As for investments, with the size and scale of operations it has to offer to global companies, the availability of skill and talent, and technology and innovation capabilities, India continues to be an attractive investment destination, it adds.

"The spotlight, in this outlook, is on India’s micro, small, or medium enterprises (MSMEs). These, we believe, will be key in generating income, capabilities, capacities, and ecosystems needed for sustained growth in consumption and investment that is broad-based and comes from all sections of the economy," says Majumdar.

"The MSME sector will also drive innovation and new opportunities in a cost-effective manner. It will drive job creation and entrepreneurship, especially for women in rural India. In short, the sector will help India reap the potential benefits of its demographic dividend and the expansion of the middle-income class," she adds.