India's economic expansion cycle is still going strong

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₹1.5 trillion for the past 15 months. However, there are concerns around a sluggish trend in consumption, particularly in the low-income segment, and a slow pick-up in private capex. In our view, these are symptoms of an early-stage expansion cycle, and growth will become broader based as the economic expansion continues.

Indeed, incoming data suggests a pick-up in rural demand in the March quarter of 2024, as reflected in consumer products’ volume growth and an improving trend in private investment, as reflected in the order books of engineering companies. How is this cycle different?: India has seen a rapid transformation from a macro perspective in the past ten years, driven by policy reforms. The reforms implemented in this period addressed three broad challenges: improving the supply-side responsiveness of the economy, fostering macro stability and improving India’s integration with the rest of the world.

These policy measures have helped fortify the Indian economy, making the growth cycle self-sustaining and less vulnerable to global shocks than in the past. This is reflected in a higher investment rate, systematically lower inflation and a stronger external balance sheet. Indeed, capex has risen to around 34% of GDP in 2023-24 from the trough of 28% of GDP in 2020-21, inflation has tracked below 6% in seven of the past nine years, the current account deficit has tracked around or below 2% of GDP since 2013-14, and India’s export market share for goods and services has risen by 40 basis points to 2.5% since 2019.