Indian economy likely to grow at 5.9% in FY24, says India Ratings

India’s gross domestic product (GDP) is expected to grow at 5.9 per cent in FY24 amid normalising pent-up demand, global slowdown, and higher borrowing costs, India Ratings & Research said on Tuesday.

“Although there are few positives for India such as sustained government capex, deleveraged corporates, low non-performing asset (NPA) in the banking sector, production-linked incentive scheme, and likelihood of global commodity prices remaining subdued, the agency believes that they are still not sufficient to take the FY24 GDP growth beyond 6 per cent,” it said in its latest macro-economic outlook for FY24.

The International Monetary Fund has projected the Indian economy to grow at 6.1 per cent in FY24 compared to 6.4 per cent estimated by the Reserve Bank of India. The latest Economic Survey has estimated economic growth to be in the range of 6-6.8 per cent in FY24, depending on the trajectory of economic and geo-political developments globally.  

The rating agency expects the average retail and wholesale inflation to be at 5.4 per cent and 1.1 per cent, respectively, in FY24 with upside risk to the forecast in case monsoon is not normal and global crude prices flare up again.

“The retail inflation is likely to fall from below 6 per cent in the months going ahead as the spike in January is more of an aberration rather than trend because monetary policy acts with a lag,” said Sunil Sinha, principal economist at India Ratings & Research.  

India Ratings does not expect more rate hikes in the near term after the 25 basis points hike in the RBI’s latest monetary policy announcement earlier this month.

“The RBI is likely to take a long pause on the repo rate front and watch the core inflation closely because it is still high and stood at 6.1 per cent in January 2023,” it added.

According to the report, the government has to continue the heavy lifting in capex despite the capacity utilisation of India Inc picking up.

“As the private sector greenfield capex has not yet revived and barring few sectors, is confined to maintenance capex, the government has no choice, but to continue to do the heavy lifting,” the rating agency said.

India Ratings said the economic activities are likely to fully normalise in FY24, however recovering the lost output due to Covid-19 will be a long haul.

“Even if we assume GDP growth at 7.6 per cent every year FY24 onwards, then also India will be able to catch up with the pre-pandemic GDP trend only by FY37,” it further added.

The agency expects that achieving the fiscal deficit target of 5.9 per cent of GDP in FY24 should not be difficult as risk to government revenue is not going to be large.

“The revenue target set by the government in the Budget is realistic and it may get hit on the direct tax collection side, but on the GST side, the collection is going to be higher than estimated in the Budget,” Devendra K Pant, chief economist at India Ratings & Research said. 

The report said the current account deficit is expected to narrow down to 2.5 per cent of GDP in FY24 against 3.3 per cent estimated for FY23.

The agency expects merchandise imports to contract by 1.7 per cent and merchandise exports to grow by just 0.5 per cent in FY24, with slowing economic growth and softening of global commodity prices. “Trade deficit is estimated to come in at $286 billion, but steady remittances and software exports may provide relief by keeping the current account deficit under check in FY24,” it added.