Wed. Sep 20th, 2023
    India’s Growth Forecast Revised Upwards for FY24, but Inflation Concerns Remain

    The growth forecast for India’s economy has been revised upwards by S&P Global Market Intelligence for the fiscal year 2023-2024, with growth expected to reach 6.6%. This is a significant increase from the 5.9% projection made in August. The revision is primarily due to solid growth in the April-June quarter, driven by robust domestic demand.

    However, the analytics firm also projected a sharp increase in inflation for 2023, with expectations of it reaching 6%. This would touch the upper band target level set by the Reserve Bank of India (RBI), compared to the 5.1% projected in August. The rising inflation is a cause for concern and could potentially impact the economy.

    S&P Global Market Intelligence is more optimistic about India’s growth prospects than the RBI, which forecasts a 6.5% growth rate for the current fiscal year. However, the analytics firm is more pessimistic about inflation, citing risks of severe weather events and the recent rebound in global oil prices.

    Looking ahead to FY25, S&P predicts that the Indian economy will grow at a rate of 6.2%, slightly higher than the 6.1% projected in August. However, global growth concerns are expected to weigh down India’s growth due to various factors, including inflation persistence, financial conditions, and geopolitical tensions.

    The analytics firm also revised its global growth forecasts, with an upward revision for 2023 to 2.6%, but a downward revision for 2024 to 2.3%. This reflects concerns about inflation, financial conditions, and escalating geopolitical tensions worldwide. Europe is expected to experience a recession in the second half of 2023, while the US will see a slowdown, and there are risks to China’s growth as well.

    The slower global growth is likely to impact India’s exports. S&P projects India’s inflation rate for 2024 to be relatively high at 5.3%. The analytics firm also expects worsening inflation trends globally, with the forecast for global inflation in 2023 at 5.7% and remaining above 4% in 2024.

    In India, inflation eased slightly in August and is expected to decline further, driven by lower tomato prices and a reduction in the price of LPG cylinders. However, the persistently high inflation is a concern and is likely to influence the rate cut trajectory. It is expected that RBI’s Monetary Policy Committee will maintain the policy rate at 6.5% in its upcoming meeting in early October.

    S&P Global Market Intelligence also highlighted that advanced economies may follow a similar trajectory in terms of rate cuts, as the challenging inflationary environment makes it unlikely for central banks to implement rate cuts until mid-2024.

    Overall, while India’s growth forecast has been revised upwards for the next fiscal year, there are concerns about rising inflation and slower global growth that may impact the country’s economic performance.

    – S&P Global Market Intelligence
    – Reserve Bank of India (RBI)
    – ET Online