India’s GDP growth is expected to be resilient despite some moderation in the second half of the last fiscal, the World Bank said in its latest report on Tuesday. The growth rate is expected to moderate to 6.3 per cent in FY24 due to shrinkage in consumption on the back of slower income, the report, The India Development Update, highlighted.
The report further said that India’s retail inflation will see a moderation from 6.6 per cent to 5.2 per cent in FY2023-24, adding that its Current Account Deficit (CAD) is expected to be at 5.2 per cent in FY24.
“The World Bank has revised its FY23/24 GDP forecast to 6.3 per cent from 6.6 per cent (December 2022). Growth is expected to be constrained by slower consumption growth and challenging external conditions. Rising borrowing costs and slower income growth will weigh on private consumption growth, and government consumption is projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures,” it said.
Highlighting the concern areas, the World Bank said the manufacturing and construction sectors, which shed a lot of jobs during the Covid pandemic, have affected the growth rate. However, it pointed out that labour market outcomes have improved post-pandemic.
“Strong domestic demand, underpinned by robust consumer spending by higher-income groups and higher public investment, was the main growth driver. However, consumer spending by low-income groups was weak due to slow income growth,” it said.
Indian economy’s year-on-year growth dipped to 4.4 per cent in the October-December quarter, down from 11.2 per cent a year back and 6.3 per cent in the preceding quarter.
The report noted that a surge in India’s services exports, which touched its highest in the October-December quarter, is expected to push the economy despite global risks.
According to RBI data, which was released on Friday last week, services exports of India rose 24.5 per cent y-o-y in October-December 2022, hitting a record $83.4 billion. The services surplus, which doesn’t include the imports section, also saw a rise of 39.21% to a record $38.7 billion. Along with this, a drop in merchandise trade deficit resulted in the current account deficit shrinking more than expected to $18.2 billion, or 2.2 per cent of GDP.
The latest World Bank report has said that this fiscal the CAD is expected to be around 5.2 per cent in FY24.
Recently, rating agency S&P Global Ratings didn’t revise its forecast for India’s economic growth and kept it at 6 per cent.
The World Bank report noted that inflation is elevated, but overall pressures are moderating as food and fuel prices moderate. It noted that the inflation level, however, is above the upper threshold of the Reserve Bank of India’s (RBI) target range of 2-6 per cent.
Since May 2022 the RBI’s Monetary Policy Committee (MPC) has hiked the repo rate (its main policy rate) by 250 basis points, it pointed out.
The RBI is expected to hike the benchmark interest rate by 25 basis points in the bi-monthly monetary policy to be announced on April 6 (Thursday) as it is trying to bring down retail inflation and keep pace with global peers. Last month, most central banks, the US Federal Reserve, the European Central Bank and Bank of England, hiked their interest rates in a bid to tame inflation in their economies.
The Monetary Policy Committee (MPC) of the Reserve Bank will be meeting for three days on April 3, 5 and 6 to take into account various domestic and global factors before deciding on the repo rate.
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