Economic Update: November 2023

Economic Update:

• India, the world’s fifth largest economy in the world, is likely to overtake Japan to become the world’s third-largest economy with a GDP of $7.3 trillion by 2030 as per projections by S&P Global Market Intelligence.
• The acceleration of foreign direct investment inflows into India over the past decade reflects the favorable long-term growth outlook for the Indian economy, helped by a youthful demographic profile and rapidly rising urban household incomes.
• India’s nominal GDP measured in USD terms is forecasted to rise from $3.5 trillion in 2022 to $7.3 trillion by 2030. This rapid pace of economic expansion would result in the size of the Indian GDP exceeding Japanese GDP by 2030, making India the second largest economy in the Asia-Pacific region.
• By 2022, the size of the Indian GDP had already become larger than the GDP of the U.K. and also France. By 2030, India’s GDP is also forecast to surpass Germany.
• The U.S. at present is the world’s largest economy with a GDP of $25.5 trillion. It makes up for a quarter of the world’s GDP. China is the second largest economy with a GDP size of about $18 trillion, which is almost 17.9% of the world GDP. Japan is a distant third with $4.2 trillion GDP, followed by Germany with $4 trillion GDP.
• In October, the RBI kept its repo rate unchanged at 6.50% and maintained its fiscal 2024 inflation forecast at 5.40%.

Israel-Hamas war 2023:

• On 7th October, an armed conflict broke out between Israel and Hamas-led Palestinian militants from the Gaza Strip after the latter launched a rockets barrage against Israel cities followed by an attack by militants. After clearing Hamas militants, the Israeli military has retaliated by enforcing a total blockade of gaza strip, conducting an extensive aerial bombardment campaign on Gazan targets, and has followed up by a large-scale ground invasion of Gaza.
• In current war, very large number of Israelis, mostly civilians and Palestinians, mostly women and children, have been killed already, as both Israel and Hamas have been accused of war crimes.
• N. by a resolution on 27^th October has called for an “immediate and sustained” humanitarian truce and cessation of hostilities, condemned “all acts of violence aimed at Palestinian and Israeli civilians” and “demands that all parties immediately and fully comply with their obligations under international law”
• For a global economy reeling under the impact of the Russian invasion of Ukraine that began in February 2022, the Israel-Hamas war has come as a fresh challenge. The earlier war, Involving a major energy producer (Russia) and a major agricultural producer (Ukraine), has led to high energy prices, a global food shortage and global inflation.
• While, neither Israel nor Gaza is a significant oil producer, the war could have repercussions across West Asia, which is home to major oil producers like Iran and Saudi Arabia. Any disruption in movement through the strait will have a direct impact on oil and gas supply and prices.
• The International Monetary Fund (IMF) estimates that global growth will slow down from 3.5% in 2022 to 3% in 2023 and to 2.9% in 2024, well below the historical average of 3.8%.
• Stock markets around the world initially sank after Israel retaliated to the Hamas attack, as panicking investors pulled out their money, especially from emerging markets. However, the markets later recovered in the hope that the war would be limited to Gaza.

Economic Impact on India:

• The rupee plunged to an all-time low of 83.28 to the dollar on October 16. It could fall further if oil prices rise. A weakening rupee makes our exports dearer and could lead to further inflation.
• A casualty of the war could be the India-Middle East-Europe Economic Corridor (IMEEC), announced during the G20 summit, planning to connect India and Europe through the UAE, Saudi Arabia, Jordan, Israel and Greece—on similar lines to China’s Belt and Road Initiative.
• Bilateral trade between India and Israel has reached over $10 billion and may be hit if the entire region gets drawn into the conflict. The UAE is India’s second largest trading partner, which makes the situation tricky for India in case of a protracted war starts involving West Asia.

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