2024 is expected to be a challenging year for the global economy, with the World Bank, UN, and IMF projecting a subdued world GDP growth rate of less than 3% . However, India's economy is expected to grow robustly at around 6-7%, showcasing remarkable resilience ². This is due to the strategic weakening of the rupee by the RBI, which has helped manage India's current account deficit. A significant byproduct of this has been a surge in FII inflows, as a weaker rupee makes Indian investments more attractive to foreign investors .
In high-interest rate environments, strong equity markets play a crucial role. The influx of capital into equity markets supports businesses and startups, driving innovation and job creation. It directly helps in mitigating the effect of higher borrowing costs, as companies can rely more on equity financing rather than debt, which becomes expensive when interest rates are high
While this strategy has its merits, the recent IMF reclassification of the rupee to a 'stabilized arrangement' signals the need for a watchful approach and focus on strengthening other core economic indicators to ensure long-term stability
In conclusion, India's economy is expected to grow robustly in 2024, despite the global economic challenges. The strategic weakening of the rupee has helped manage India's current account deficit and has led to a surge in FII inflows. Strong equity markets play a crucial role in mitigating the effect of higher borrowing costs, but a watchful approach is needed to ensure long-term stability.