Despite being the fastest-growing economy in the ongoing financial year, India’s economy faces considerable risks this year and will slow down considerably, according to economists polled by news agency Reuters.
Top global institutions have forecast India to be the fastest-growing economy in FY24, as the country remains resilient from global shocks that have brought major economies to their heels.
However, India’s economy faces considerable risks this year and will slow down significantly, said economists polled by news agency Reuters.
India’s domestic growth prospects remain robust, but economists feel that there is no escaping the cascading impact of the global economic slowdown, which could hurt various key segments of growth.
The country is already facing the impact of high inflation, despite a series of aggressive interest rate hikes by the Reserve Bank of India since last year.
Lower growth predictions
The economists noted that growth in India was expected to slow to 6 per cent in FY24, which is much slower than the estimated 6.9 per cent growth last fiscal. If the growth does come in at 6 per cent, it would be much lower than the country’s long-term average.
It may be noted that the RBI has projected GDP growth for the fiscal year at 6.5 per cent, but the Reuters report noted that the range of forecasts in the poll had widened from last month.
All of the economists who participated in the latest poll predicted a notable deceleration in economic growth this year. The most optimistic forecast was 6.6 per cent and the weakest was 4.4 per cent.
Kunal Kundu, India economist at Societe Generale, told the news agency that the pent-up demand induced technical rebound is over after the pandemic-led contraction. He added that India’s real GDP is expected to slow down substantially in FY24.
“We believe domestic demand will barely support economic activity but not drive growth. We expect public capex-led infrastructure investment to be the major growth driver, while private business capex would still likely remain quite subdued,” he added.
Aggressive rate hikes and sticky inflation
Economic growth will also be impacted by constantly high levels of inflation, despite six consecutive rate hikes by the RBI since May last year.
The RBI has increased the key repo rate by 250 basis points this year and is likely to pause the hike cycle for an extended period, even as inflation remains over its medium-term target of 4 per cent.
While retail inflation fell sharply in March, economists noted that it will rise again due to extreme weather conditions, which can damage crops and trigger price hikes. The RBI will closely monitor the situation, but it is unlikely to push rates higher as the full impact of its previous policy moves is yet to play out.
Meanwhile, almost all the economists polled by Reuters said the impact of inflation could be worse than predicted earlier. Not just extreme weather conditions during the summer months, but a possible increase in global oil prices will also impact inflation and ultimately lead to a prolonged growth slowdown.