India’s Macro Economic Outlook: A CFO's Viewpoint

The year 2024 could be an unpredictable year for the Indian economy. Being an election year, the re-election of the current government would provide a further push to the populist decision to advance the economic growth of the country and move towards the vision of a 5 trillion-dollar economy by 2027-28.
On the other hand, if a new government gets the voters' mandate, it might result in a brief pause in the economy before the new government brings in their own vision of economic development, which is quite normal in this type of scenario.

Besides these uncertainties, ongoing geopolitical issues such as conflicts between nations, increasing climate risk, strict trade barriers, etc. have disrupted supply chains and oil prices, leading to an increase in input prices. However, until now, India has managed to navigate the situation with its strong diplomatic ties.

Increasing Investor Confidence in India

Irrespective of the factors mentioned above, India is poised to be one of the fastest-growing economies in the world with an expected growth rate of 6.3% whereas other major economies are on the brink of a recession. The global economy is currently anticipated to grow at an average of 3%. From this, it is evident that India is going to be in a strong position to capitalize on investment which could make it a favorable investment destination for both FDI and FII.

India is relying on such an increase in FDI and FII along with a decrease in the trade deficit to improve the capital account deficit. The current account deficit for the second quarter of Financial Year 2023-24 declined to just 1%. Moreover, the fiscal account deficit, which is currently 5.1% of the GDP, is targeted to be reduced to 4.5% by 2026.

CFOs should keep an eye on new funding opportunities from foreign investors. There could be several strategic investors now available to Indian companies who would not just bring in capital but also technical know-how. CFOs also have an opportunity to drive some of these activities which may involve M&As. CFOs that are facing high inflows of FDI may also seek a revision in their capital structure of debt and equity to optimize financing costs.

The New FDI - First Develop India

Capital expenditure, budgeted at INR 11,11,111 crore or 3.4% of the GDP, will focus on infrastructure development along with a dedicated economic corridor for railways, under the PM Gati Shakti scheme for efficient and cheaper movement. This will boost investment by private players and foreign players, which is possible through various bilateral treaties that the government has been able to facilitate.
The National Logistics Policy, which is framed under this master plan, is implemented with a vision to provide a seamless logistics network all across India through integrated, eco-friendly, and cost-effective measures. It is expected to help reduce the current time taken for transportation while lowering petroleum consumption.

The Indian government is aiming to build a robust Digital India through the emergence of newer technologies such as Artificial Intelligence (AI), Machine Learning (ML), software development, and other modernization and technical advancements, which will support various sectors such as finance, healthcare, manufacturing, agriculture, etc. by increasing productivity while fostering innovation.
Almost 6.25 lakh IT professionals are expected to be reskilled under the Digital India program. This will provide a huge benefit as the industry will have access to trained resources for ready deployment. The scaling up of technology and innovation will support the growth of other sectors such as renewable energy, space, IT etc.

To boost the development of the start-up ecosystem, the government has implemented various schemes to improve the ease of doing business, reduce compliances, and disburse various tax sops. These measures will play an important part in facilitating inclusive and holistic growth.

CFOs of start-ups can take advantage of these benefits given by the government as most of the benefits pertain to the finance function in some or the other way. CFOs should guide the Board and the founders on identifying such benefits and how they fit into their overall business plan. They could also plan to take advantage of the viability gap funding scheme for start-ups which are based in Tier 2 and Tier 3 cities.

Due to the government's new policies on logistics and its focus on improving infrastructure, CFOs should also consider how their organizations can reap the benefit of lowered logistics costs to become competitive on the global stage.

In terms of digital initiatives, CFOs should look out for the disruptive impact that new-age technologies will have on their business. They should push for technology upgrades in their organization to make sure the business continues to stay relevant in the industry.

Focus Sectors

Technology and Innovation

The forward-thinking approach of the government towards technology and innovation could lead India to become a technology and innovation hub. India already possesses immense talent and has the potential to cater to global demand. The added focus on this sector will drive meaningful impact across sectors such as finance, healthcare, manufacturing, agriculture, and others. Various schemes announced towards upskilling the youth in AI, automation, robotics, etc. will also help in increasing the skilled talent pool as opposed to the brain-drain trend which has been witnessed in the past.

Manufacturing

The electronics, automotive, and pharmaceutical sectors are set to witness increasing demand from both domestic and foreign markets. Various schemes under the Make in India initiative such as Production Linked Incentives (PLI), National Infrastructure Pipeline (NIP), and institutional mechanisms to fast-track investments will function as a catalyst for the growth of this sector and overall GDP growth.

Agriculture

Efforts towards modernization and diversification in agriculture could address sustainability and yield improvements, fostering growth in this cornerstone of India's economy.

Ports, Shipping, and Waterways

The GOI's announcement of setting up a Bureau of Port Security will uplift India's maritime sector. The government's commitment to increase port capacity under the Public-Private Partnership (PPP) model will provide Indian players a great opportunity as this would mean a capacity increase from the existing 2,600 MTPA (Million Tonnes Per Annum) to 10,000 MTPA in the next 20 years.

CFOs from ITeS and BPO companies can consider operating from smaller towns and cities, where they will get financial support and incentives from the government, which could result in higher margins.

The semiconductor manufacturing industry is on the verge of making a huge leap. CFOs can aggressively invest in this sector further with the help of incentives from the government. Various foreign manufactures have got approval or are already under the approval stage for setting up manufacturing facilities in India.

CFOs from various sectors such as tourism, hospitality, and aviation may find a golden opportunity to grow their business into newer locations such as Lakshadweep, Dwarka, Ayodhya, etc. where heavy footfall is expected over the next few years.

Conclusion

As CFOs assess the evolving landscape, they must remain vigilant of changing policies and geopolitical dynamics, while strategically leveraging government incentives and funding programs. Collaborating with stakeholders and exploring new avenues for investment and technological innovation will be crucial in steering their organizations towards sustainable growth amidst the complexities of the Indian economic landscape in 2024 and beyond.