India’s GDP Growth: The First Half Faltered, But Economy Seen Rebounding in the Second Half of 2024
India, one of the world’s fastest-growing major economies, began 2024 with signs of economic slowdown, sparking concerns about its growth prospects. The country’s GDP growth faltered during the first half of the fiscal year, primarily due to a slowdown in manufacturing, a muted agricultural performance, and global economic uncertainties. However, despite the initial setbacks, many analysts are hopeful that India’s economy will rebound strongly in the second half of 2024, driven by an upturn in demand, structural reforms, and a stronger services sector.
This article delves into the key reasons behind the faltering first half of India’s GDP growth and explores the factors that could catalyze a recovery in the latter half of 2024.
First Half of 2024: Growth Challenges
India’s economy started the fiscal year 2024 on a weak note, with the country’s GDP growth slowing down to 5.5% in the first quarter, much lower than the anticipated 7%. Several factors contributed to this slowdown, which affected different sectors in unique ways.
- Weak Manufacturing Output: The manufacturing sector, which has traditionally been a critical pillar of India’s growth story, faced significant challenges. A combination of high input costs, supply chain disruptions, and weak global demand from key trading partners like the United States, Europe, and China took a toll on industrial activity. The manufacturing Purchasing Managers’ Index (PMI), which had been signaling growth in previous years, registered a decline, pointing to reduced production levels. Despite government initiatives such as the Production-Linked Incentive (PLI) scheme, which aimed to encourage manufacturing in sectors like electronics and textiles, the sector struggled to pick up pace. Many companies, particularly in the automotive and electronics industries, reported weak domestic and export demand, leading to lower-than-expected growth.
- Agricultural Slowdown: Agriculture, which employs the largest share of India’s population, was another area of concern in the first half of 2024. Despite favorable weather conditions during the monsoon season, agricultural productivity remained subdued. This was largely due to structural issues within the sector, such as outdated farming techniques, low mechanization, and inadequate irrigation infrastructure. Additionally, the impact of climate change on crop yields, including erratic rainfall and rising temperatures, continued to create uncertainty for farmers. While the government introduced various schemes to support the agricultural sector, including loan waivers and subsidies, these measures did little to reverse the stagnation in productivity.
- Rising Inflation: Inflation remained a significant challenge in the first half of 2024, adding pressure on household budgets and consumer sentiment. Despite the Reserve Bank of India (RBI) hiking interest rates multiple times in 2023, core inflation remained sticky, particularly in food, fuel, and essential goods. The cost of living in India continued to climb, driven by rising prices for items such as cooking oil, gasoline, and vegetables. This led to a decline in consumer spending, which accounts for a substantial portion of India’s GDP. A contraction in consumer demand, especially in discretionary spending, weighed heavily on the overall economy.
- Global Economic Uncertainty: The global economic environment played a critical role in India’s growth slowdown. The ongoing Russia-Ukraine war, along with geopolitical tensions in other parts of the world, caused supply chain disruptions and increased the cost of raw materials. The resulting volatility in oil prices and commodity markets added to inflationary pressures in India. Moreover, a global economic slowdown, particularly in advanced economies like the United States and the European Union, reduced demand for Indian exports. India’s key export sectors, including automobiles, textiles, and chemicals, suffered from sluggish overseas demand, which further dampened overall growth prospects in the first half.
Rebounding in the Second Half: Key Growth Drivers
Despite the challenges faced in the first half, there is a growing sense of optimism that India’s economy could rebound strongly in the second half of 2024. Several factors are expected to play a pivotal role in driving growth recovery, from domestic consumption to government reforms and external demand.
- Government Reforms and Infrastructure Investments: The Indian government’s focus on infrastructure development is expected to provide a significant boost to economic growth in the second half of 2024. With investments pouring into sectors such as railways, roads, ports, and energy, the government is laying the groundwork for long-term economic growth. The National Infrastructure Pipeline (NIP), which aims to spend trillions of rupees on infrastructure over the next few years, is expected to create jobs, stimulate demand for materials, and provide an impetus for industrial activity. Projects such as the Bharatmala Pariyojana (roads and highways) and Sagarmala (ports and shipping) are expected to see accelerated progress, boosting both domestic demand and export capacity.
- Strong Services Sector: India’s services sector, particularly information technology (IT), business process outsourcing (BPO), and financial services, continues to be a major driver of economic growth. Despite global headwinds, India’s IT and software exports remain competitive, and companies are increasingly outsourcing digital and tech services to Indian firms. In particular, India’s digital economy is expected to continue expanding, driven by growth in e-commerce, fintech, and digital payments. The country’s fast-growing tech start-up ecosystem also holds significant potential to create jobs and attract foreign investment. As a result, the services sector could help offset weakness in manufacturing and agriculture, becoming a more significant contributor to GDP growth in the second half of the year.
- Monsoon and Agricultural Recovery: The agricultural sector could see a recovery in the second half of 2024, thanks to favorable monsoon rains and increased government support for farmers. The government has continued to roll out subsidies, low-interest loans, and insurance schemes aimed at improving the resilience of the agricultural sector. With increased investments in irrigation, mechanization, and agricultural research, productivity could improve, particularly in key crops such as rice, wheat, and pulses. The Indian government has also placed a stronger emphasis on agriculture exports, aiming to increase India’s share in global agricultural markets. With improved harvests and better export opportunities, agriculture could provide much-needed support to the economy in the latter half of 2024.
- Export Growth and Global Demand: As global economies recover and demand for goods and services picks up, India’s exports are likely to benefit. The country’s export-oriented sectors, including pharmaceuticals, textiles, automobiles, and chemicals, could see improved demand, especially as China’s economic growth stabilizes. Additionally, India’s growing trade ties with East Asian countries, Africa, and the Middle East could help mitigate the impact of slow demand from traditional markets like the United States and Europe. With a diversified export portfolio, India is better positioned to navigate global economic volatility.
- Monetary Policy Adjustments: The Reserve Bank of India (RBI), after implementing several interest rate hikes in 2023, may shift its focus toward accommodative monetary policy if inflation starts to moderate and growth picks up in the second half. A reduction in interest rates would make borrowing cheaper, stimulating demand in sectors such as housing, automobiles, and consumer goods. Lower rates, coupled with increased liquidity, could provide the much-needed stimulus for businesses to expand investments and create jobs, driving economic recovery in the second half of 2024.
Conclusion: A Cautious Optimism for 2024
While the first half of 2024 saw India’s GDP growth falter due to a mix of internal and external factors, there is cautious optimism for the second half. The country’s robust services sector, large-scale infrastructure investments, potential agricultural recovery, and the government’s commitment to economic reforms offer reasons for hope. Moreover, a stabilization of global economic conditions could further help India’s growth prospects.
That said, the path to recovery is not without its challenges. Global uncertainties, inflationary pressures, and domestic structural issues must still be managed. If India can overcome these hurdles, it has the potential to return to its growth trajectory, with the second half of 2024 serving as a critical period for economic recovery. While growth expectations may not reach the 7% levels initially forecasted, a more moderate but sustainable recovery is within reach, providing a solid foundation for India’s economy as it moves into 2025.
