Indian economy is likely to slow down further to 6.1% compared with 6.3% projected in FY24 as global growth remains subdued in the coming year, the Organisation for Economic Co-operation and Development noted in its latest economic outlook released Wednesday.
“Following a strong outcome in FY23, real GDP growth is projected to slow to 6.3% in FY24 and 6.1% in FY 2024-25 on account of adverse weather-related events and the weakening international outlook,” the inter-governmental group of 38 high-income economies noted in its report, banking on services exports and public investment to drive the economy.
India likely grew faster than expected in Q2FY24 at 6.7%, according to the median of an ET poll of economists.
The international body, however, expects India’s growth to pick up in FY26 to 6.5%.
“Inflation will decline progressively, with corresponding improvements of purchasing power. This, along with the end of the El Niño weather pattern, productivity gains from recent policy reforms, and improved global conditions, will help economic activity to strengthen,” OECD noted.
India’s inflation declined to 4.9% in October, according to data released earlier this month.
OECD was more pessimistic with regard to inflation, projecting a 5.3% inflation in FY25.
“Food and energy prices remain sensitive to weather conditions and geopolitical tensions,” it said, adding that food price pressures is expected to delay policy rate cuts to mid-2024.
Reserve Bank of India’s monetary policy committee will likely hold the policy rate at 6.5% for the fifth consecutive time at its meeting next week.
The OECD expects rates to decline to 5.5% by the end of 2025.
“With slower growth, inflation expectations, housing prices and wages will all progressively moderate, helping headline inflation converge towards 4.2% (FY26),” OECD noted.
The organisation noted that the risks were tilted to the downside, but below-normal monsoon and portfolio capital outflows could impact growth and inflation.
“While indicators suggest that India’s growth is stable for now, there are strong headwinds from heightened global uncertainty,” it pointed out.
On the fiscal front, while OECD was confident of central government meeting its targets, it said that states needed to control their expenses.
India has set a target of 4.5% fiscal deficit for FY26.
“Over the next two years, the government targets are projected to be achieved, but greater efforts to control expenses are needed at the state level, along with policy interventions to narrow the tax gap,” OECD said.
Global growth declines
OECD projected global growth to decline to 2.7% in 2024 from 2.9% projected for 2025. China is expected to slowdown to 4.7% in 2024 from 5.2% in 2023.
“The global economy continues to confront the challenges of both low growth and elevated inflation, with a mild slowdown next year, mainly as a result of the necessary monetary policy tightening over the past two years,” said OECD Secretary-General Mathias Corman.
Slow, but steady
-India’s economy to slow a bit to 6.1% in FY25
-Bounce back to 6.5% expected in FY26
-India to meet its fiscal targets
-RBI to start cutting rates from mid-2024
| (% change, y-o-y, GDP) | 2023 | 2024 | 2025 |
| India | 6.3 | 6.1 | 6.5 |
| World | 2.9 | 2.7 | 3 |
| US | 2.4 | 1.5 | 1.7 |
| Euro Area | 0.6 | 0.9 | 1.5 |
| China | 5.2 | 4.7 | 4.2 |
