Indian economy is likely to grow a tad faster in this fiscal year at 6.2% compared to the earlier estimate of 5.9%, according to a new outlook released by India Ratings and Research.
The rating agency predicted inflation to be higher at 5.5% from 5.4% projected earlier in FY24, predicting that El Nino and uneven monsoons remained a risk for both inflation and growth estimates.
“Inflation is the number one risk for any economy,” said DK Pant, chief economist, India Ratings and Research, adding that “once we are able to take care of inflation, a lot of problems will be resolved for the economy.”
Ind-Ra notes El Nino, higher global monetary tightening and external demand as key economic risks, with Pant highlighting that these risks existed “not only for now but years to come.”
India’s inflation eased marginally to 6.8% in August, after hitting a 15-month high of 7.4% in July.
While the agency pointed to green shoots emerging from private capex and the government’s capex push as reasons for improved outlook, it said that consumption needed to become more equitable to sustain growth.
“This kind of consumption demand cannot hold for long unless the consumption of the lower end of the pyramid rises. If wage growth remains stunted, so will current consumption demand”, said Sunil Kumar Sinha, principal economist, Ind-Ra.
Ind-Ra pointed that the consumption recovery was still not broad based with the upper income earners driving consumption.
“Ind-Ra believes sustained real wage growth of the households belonging to lower income bracket is an imperative for a sustainable and broad-based recovery in consumption demand,” the rating agency noted.
India’s economy grew 7.8% in the first quarter of FY24 on the back of services growth. The services sector has emerged as a key driver of overall GDP growth, the rating agency said.
However, Ind-Ra pointed out that the GDP growth was still 9.4% lower than the pre-pandemic trend.
“Even if the economy grows at 7.6% growth, it will take 12 years to reach back to trend growth of the pre-pandemic level of growth,” Sinha pointed out.
Ind-Ra’s growth upgrade follows upside revisions to GDP by OECD and S&P Global Market Intelligence earlier this week.
