The latest Fitch Ratings has cited a recovery in consumer spending and increased investment. File photo
| Photo Credit: The Hindu

Fitch Ratings on Tuesday, June 18, 2024, raised India’s growth forecast for current fiscal to 7.2 per cent, from 7 per cent projected in March, citing a recovery in consumer spending and increased investment.

For the fiscal years 2025-26 and 2026-27, Fitch projected growth rates of 6.5 per cent and 6.2 per cent, respectively.

“We expect the Indian economy to expand by a strong 7.2 per cent in FY24/25 (an upward revision of 0.2 pp from the March GEO),” Fitch said in its global economic outlook report.

Fitch’s estimates are in line with that of RBI which earlier this month projected Indian economy to expand 7.2 per cent in the current fiscal on the back of improving rural demand and moderating inflation.

Investment to continue, consumer spending to pick up

Investments will continue to rise but more slowly than in recent quarters, while consumer spending will recover with elevated consumer confidence, it said.

Fitch said purchasing managers survey data point to continued growth at the start of the current financial year.

It said signs of the coming monsoon season being more normal should support growth and make inflation less volatile, though a recent heatwave poses a risk.

“We expect growth in later years to slow and approach our medium-term trend estimate,” it said, adding growth will be driven by consumer spending and investment.

The Indian economy grew 8.2 per cent in the last fiscal (2023-24), with a 7.8 per cent expansion in March quarter.

Inflation, Fitch expects, will decline to 4.5 per cent by end 2024 and average 4.3 per cent in 2025 and 2026.

Fitch said it expects the RBI to cut policy interest rates by 25 basis points this year to 6.25 per cent.

New Delhi:

Finance Minister Nirmala Sitharaman on Friday termed 8.2 per cent GDP growth in 2023-24 as ‘remarkable’ and said the growth momentum will continue in the “third term of the Modi Government”.

Today’s GDP data showcases robust economic growth with a growth rate of 8.2 per cent for FY 2023-24 and 7.8 per cent for the fourth or March quarter of FY 2023-24.

“This remarkable GDP growth rate is the highest among the major economies of the world,” Nirmala Sitharaman said in a post on X.

She said the manufacturing sector witnessed a significant growth of 9.9 per cent in 2023-24, highlighting the success of the Modi government’s efforts for the sector.

Many high-frequency indicators indicate that the Indian economy continues to remain resilient and buoyant despite global challenges, she added.

“India’s growth momentum will continue in the third term of PM Shri @narendramodi-led government,” she said.

The last phase of Lok Sabha elections will be held on Saturday while the results will be announced on June 4. 

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

 The Reserve Bank’s Annual Report for 2023-24 said that the Indian economy is navigating the drag from an adverse global macroeconomic and financial environment.
| Photo Credit: REUTERS

Indian economy is likely to grow at 7% in the current fiscal year starting April, the Reserve Bank of India (RBI) said in its annual report released on May 30.

The Indian economy, it said, expanded at a robust pace in 2023-24 (April 2023 to March 2024 financial year), with real GDP growth accelerating to 7.6% from 7.0% in the previous year – the third successive year of 7% or above growth.

“The real GDP growth for 2024-25 is projected at 7.0% with risks evenly balanced,” it said.

India’s GDP growth is robust on the back of solid investment demand which is supported by healthy balance sheets of banks and corporates, the government’s focus on capital expenditure and prudent monetary, regulatory and fiscal policies, the RBI said. The Reserve Bank’s Annual Report for 2023-24 said that the Indian economy is navigating the drag from an adverse global macroeconomic and financial environment.

Indian economy, the report said, is well-placed to step up growth trajectory over the next decade in an environment of macroeconomic and financial stability.

“As headline inflation eases towards the target, it will spur consumption demand especially in rural areas,” it said.

It further said the external sector’s strength and buffers in the form of foreign exchange reserves will insulate domestic economic activity from global spillovers.

The report, however, added that geopolitical tensions, geoeconomic fragmentation, global financial market volatility, international commodity price movements and erratic weather developments pose downside risks to the growth outlook and upside risks to the inflation outlook.

The RBI also emphasised that the Indian economy would have to navigate challenges posed by rapid adoption of AI/ML (artificial intelligence/machine learning) technologies as well as recurrent climate shocks.

The annual report is a statutory report of RBI’s central board of directors. The report covers the working and functions of the Reserve Bank of India for the April 2023-March 2024 period.

A worker cuts metal inside a workshop manufacturing metal pipes in Mumbai, India August 11, 2017. REUTERS/Shailesh Andrade
| Photo Credit: SHAILESH ANDRADE

India can sustain 8% annual GDP growth and the conducive macroeconomic configuration may become a launching pad for a step-up in the country’s growth trajectory, said an article on the ‘State of Economy’ in the central bank’s March Bulletin published on March 19.

Between 2021-24, gross domestic product (GDP) growth has averaged above 8%. The global economy is losing steam, with growth slowing in some of the most resilient economies and high-frequency indicators, pointing to further levelling in the period ahead, said the article authored by a team led by RBI Deputy Governor Michael Debabrata Patra.

Stong fundamentals

In India, real GDP growth was at a six-quarter high in the October-December period of 2023-24, powered by strong momentum, robust indirect taxes, and lower subsidies. The high visibility of structural demand and healthier corporate and bank balance sheets will likely be the galvanising forces for growth going forward. “The world is confronted with large shifts in structure and sentiments, which are either underway or impending,” it said.

The article noted that the outlook is shrouded with layers of uncertainty, exacerbated by geopolitical and extreme weather risks and fragmenting forces. By contrast, it said the Indian economy is experiencing a conducive macroeconomic configuration that can be its launching pad for a step-up in its growth trajectory. “Over the period 2021-24, growth has averaged above 8%; and the underlying fundamentals indicate that this can be sustained and even built upon,” the authors said.

The current account deficit is modest, external buffers are resilient and fiscal consolidation is into its third consecutive year even as corporations are deleveraging and improving their debt servicing capacity.

According to the article, balance sheets in the financial sector are sound and healthy, providing the wherewithal for intermediating the productive credit needs of a resurgent economy. “Financial markets are reflecting these favourable formations. Capital inflows have resumed strongly as investor interest floods back into India,” it said.

Converting favourable factors into opportunities

The authors said technology is offering new growth opportunities to seize by becoming more competitive and efficient. “The time has come to build world-class infrastructure, strong manufacturing bases, a high-quality labour force and global leadership in services to convert these favourable factors into opportunities and strengths over the next few decades,” they added.

The article further said the aggregate demand in the third quarter of 2023-24 was investment-driven, with some indications of a revival of the private capex cycle. Capacity utilisation in several sectors has reached a point where there has to be new investments.

“The current financial year will likely see the highest ever length of four-lane roads being constructed, along with the highest ever length of speed or access-controlled highways — on course to create a world-class road network by 2037,” it said. It also noted that the demand outlook for premium consumer businesses is robust and the growth rhythm is expected to persist into the medium-term.

This suggests that there are significant per capita income shifts underway, it said, adding that small-town opportunities are leading to the growth of business across lifestyle segments, with companies that entered these markets enjoying the fruits of being first movers.

Making a flurry of revisions in the economy’s growth estimates, the National Statistical Office (NSO) on Thursday raised India’s real GDP growth esimate for this year to 7.6% from the 7.3% projected last month. It also scaled down its 7.2% growth estimate for 2022-23 to 7%, and raised its 2021-22 estimate from 9.1% to 9.7%.

The Gross Value Added (GVA) in the economy is projected to rise 6.9% this year, with the NSO downgrading last year’s GVA growth to 6.7% from 7%. GDP growth for the first two quarters of this year was raised to 8.2% and 8.1%, further rising to 8.4% for the the October to December 2023 quarter (Q3).

Economists expressed some surprise that GVA growth in Q3 slid to just 6.5% from revised estimates of 8.2% and 7.7% in Q1 and Q2, respectively. Concerns also persisted about private consumption, which grew 3.5% in Q3 from 2.4% in Q2, while the full year growth estimate was downgraded to 3% from the 4.4% reckoned in early January.

Struggling farm sector

Farm sector GVA growth slipped into a 0.8% contraction in Q3, and the full year is now expected to record a mere 0.7% rise, compared with 4.7% in 2022-23. Chief Economic Advisor V. Anantha Nageswaran said he expects the farm sector to recover next year, adding that industrial growth had lifted growth this year. Acceleration in GVA growth from three key sectors has helped: construction, up 10.7%; manufacturing, which is up 8.5% from a 2.2% dip in 2022-23; and mining, up 8.1% versus 1.9% last year.

Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, attributed this year’s growth upgrade to the downward revision to last year’s growth numbers, and the stronger investment and net exports, although consumption is lagging. “More intriguing is that the GVA estimates for this year have been left unchanged while GDP is sharply higher,” she said.

GVA growth in the employment-intensive trade, hotels, transport, communications, and broadcasting services sectors is expected to almost halve to 6.5% in 2023-24 from 12% in 2022-23. Mr. Nageswaran stressed that this comes on the back of very strong upticks in 2021-22 and 2022-23, so that this is more of a stabilisation rather than a dip.

Q4 growth to dip

“Some surprises that need further exploration relate to GVA growth remaining at 6.9% while GDP growth is being revised upwards to 7.6%. Also, the average GDP growth for the first three quarters of the year is 8.2%, implying that the fourth quarter growth would only be at 5.9%,” noted EY India chief policy advisor D.K. Srivastava.

“The data still has lot of noise in it as reflected in large swings in the discrepancy numbers for this year as well as last year. Interestingly, there has been a downward revision in the growth of demand-side drivers,” India Ratings and Research economists Sunil Kumar Sinha and Paras Jasrai said, highlighting that consumption demand remains weak and skewed towards items largely consumed by upper income households.

Reserve Bank of India Governor Shaktikanta Das.
| Photo Credit: PTI

The Reserve Bank of India (RBI) on February 8 projected GDP growth for the next financial year at 7% on the back of improved household consumption and upturn in private capex cycle.

The real GDP growth is, however, lower than 7.3% estimated by the National Statistical Office (NSO) for the current 2023-24 fiscal aided by strong domestic economic activity and investments. The Indian economy grew 7.2% in 2022-23 fiscal.

In its Monetary Policy Statement, 2023-24, RBI Governor Shaktikanta Das said the recovery in rabi sowing, sustained profitability in manufacturing and underlying resilience of services should support economic activity in 2024-25.

“Among the key drivers on the demand side, household consumption is expected to improve, while prospects of fixed investment remain bright owing to upturn in the private capex cycle, improved business sentiments, healthy balance sheets of banks and corporates; and government’s continued thrust on capital expenditure,” Mr. Das said.

The improving outlook for global trade and rising integration in the global supply chain will support net external demand. The RBI flagged headwinds from geopolitical tensions, volatility in international financial markets and geo-economic fragmentation as risks to growth outlook.

“Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7% with Q1 (April-June) at 7.2%; Q2 at 6.8%; Q3 at 7% and Q4 at 6.9%. The risks are evenly balanced,” Mr. Das said.

To keep inflation within the targeted 4% (+/-2%) band, the RBI on February 8 retained benchmark interest rate or repo at 6.5%.

The interest rate setting monetary policy committee (MPC) also decided to remain focussed on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

“Global growth is likely to remain steady in 2024 after a surprisingly resilient performance in a turbulent year gone by. Inflation is edging down from multi-decade highs, with intermittent upticks,” Mr. Das said.

Mr. Das said rural demand in India continues to gather pace, urban consumption remains strong and investment cycle is gaining steam on the back of increased capex. Also, there are signs of revival in private investments.

The Indian economy will grow at around 6.5 per cent in the current fiscal, notwithstanding high crude oil prices and increased uncertainty due climate changes, NITI Aayog member Arvind Virmani said on Thursday.

Mr. Virmani also asserted that the gross household savings ratio in India has consistently gone up.

In an interview with PTI, he said: “My growth projection (of India’s GDP growth) is 6.5 per cent plus minus 0.5 per cent… because my experience is that the fluctuations in global GDP more or less has balanced out for us, assuming normal changes.”

On some US-based economists’ claim that India is overstating economic growth, Virmani said he has noticed that certain former officials don’t have any idea how GDP is constructed as they have come from academic background.

Last week, the Finance Ministry also dismissed the criticism of inflated GDP, saying it has followed the consistent practice of using the income side estimates to compute economic growth, and stressed many international agencies have revised upwards their forecast after seeing the first quarter data.

The critics, the ministry had said, should have looked at other data like purchasing managers’ indices, bank credit growth, increase in capital expenditure and consumption patterns to assess the growth.

India’s GDP growth in 2022-23 was 7.2 per cent, lower than 9.1 per cent in 2021-22. According to Reserve Bank of India’s projections, India’s GDP is likely to grow at 6.5 per cent in the current fiscal year.

The eminent economist noted that the risk for India is “crude oil prices”. “.. if we look back 10 years ago… Saudi Arabia and the USA were more or less on the same geopolitical platform, and they used to coordinate things… but that has changed in the last five years,” Virmani said.

International crude oil prices have breached the USD 90 per barrel mark for the first time in 10 months and are currently hovering around USD 92 per barrel.

“Recently, we have seen that it (Saudi Arabia) cut down on oil production when oil prices started going to reasonable levels, and so did Russia.

According to Virmani, the issue of El Nino conditions has come up again and the uncertainty has increased because of climate change.

Responding to a question on falling household savings to five-decade low, Virmani said the net household saving is falling down, not the gross household savings.

“The gross household savings ratio has consistently gone up. The net household savings ratio is going down because consumer debt is increasing faster,” he said.

Asked whether the fall of net household savings is a matter of concern, Virmani noted that every economist who writes on macroeconomics said that the debt-to-GDP ratio in India is way too low.

“They have compared India with every country in the world, and they keep telling you that there’s a huge scope for increasing debt-to-GDP ratio in India,” he observed.

He noted that “the debt-to-GDP ratio for households in the country is not too high or unsustainable.” Responding to a question on high inflation, the eminent economist said the rise in crude oil prices will have some inflationary impact.

“Because inherently the income of the people goes down. So again, (regarding rise in) oil prices, we cannot do anything in the short-term, except manage it,” he opined.

Virmani emphasised that as far as food inflation is concerned, the government has managed it reasonably well.

Retail inflation declined to 6.83 per cent in August after touching a 15-month high of 7.44 per cent in July, mainly due to softening prices of vegetables, but still remains above the Reserve Bank’s comfort zone.

Meanwhile, India’s real GDP growth was 7.8 per cent on a year-on-year basis in Q1 FY24, as per the Income or Production Approach.

Recently, former Chief Economic Advisor Arvind Subramanian, in an article, argued that India’s GDP is not measured from the expenditure side rather than the productivity side.

Earlier this month, Chief Economic Advisor V Anantha Nageswaran rejected criticism of “statistical discrepancy” in the first quarter GDP data, saying when the same statistical authority reported the severest contraction in the first quarter of 2020, the naysayers had called it credible as it suited their narrative.

The article was written in light of debates over India’s economic performance and economist Ashoka Mody, a Princeton University professor, raising concerns regarding the country’s GDP growth rate for the first quarter of the financial year 2023-24.

India observed its 77th Independence Day this year. This analysis measures India’s relative performance in the past 76 years compared to other countries across four parameters — GDP per capita, Human Development Index (HDI), Infant Mortality Rate (IMR) and women’s participation in Parliament. Owing to technological advancement and infrastructural development, India and other countries have made remarkable progress in the past seven and half decades. So it becomes imperative to look at where India stood compared to other nations around the time of independence and where it stands now among them.

India is compared with these countries: BRICS (Brazil, Russia, China, South Africa), G-7 countries (Canada, France, Germany, Italy, the United Kingdom, and the United States), emerging economies (Argentina, Chile, Colombia, Egypt, Hungary, Indonesia, Iran, Malaysia, Mexico, the Philippines, Poland, Saudi Arabia, Thailand, Turkey, and the United Arab Emirates) and the Indian subcontinent (Bangladesh, Bhutan, Nepal, Pakistan and Sri Lanka).

Chart 1 | The chart compares GDP per capita (in $) of 26 countries between the 1960s and 2022.

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India’s GDP per capita ranking of 24 out of 26 nations analysed remained unchanged between the 1960s and 2022. While Indonesia and Nepal were lagging behind India in the 1960s, Pakistan and Nepal were lagging behind in 2022.

Chart 2 | The chart compares the Human Development Index of 31 countries between 1950 and 2021.

India’s HDI increased by 0.11 points in 1950 to 0.633 in 2021. However, India’s ranking slipped from 26 in 1950 to 29 by 2021. Of the five countries which lagged behind India in 1950, Saudi Arabia, Indonesia and Bangladesh—moved ahead by 2021, with scores of 0.87, 0.7 and 0.66 respectively.

Chart 3 | The chart compares infant mortality rates in 32 countries between 1960-1975 and 2021. 

Between 1960 and 1975, India had the seventh-worst IMR among these 32 nations. In 2021, India regressed four spots and became the third-worst. Of the six countries which were behind India in 1960-75, five (Turkey, Bangladesh, Bhutan, Egypt and Nepal) surpassed India by 2021. However, South Africa regressed.

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Chart 4 | The chart compares the share of women in Parliament in 31 countries between 1997 and 2022. 

Women’s participation in India increased from 7% in 1997-98 to 14.9% in 2022. Over 10 countries were behind India in this indicator in 1997-98. In 2022, only five remain below India.

In case of other indicators like access to electricity and usage of the internet, India has had significant progress. Between 1993 and 2000, only 50% of India’s population had access to electricity. By 2020, this increased to 99% of its population. A majority of the 32 countries considered provided electricity to over 99% of their population by 2020, except for Pakistan, South Africa and Nepal where the share remains below 90%. In 1990, almost no country considered, except for the U.S., had any access to the Internet. But by 2020, India has managed to provide internet access to 43% of its population. While India lags behind 27 countries in this indicator, Bhutan (53.5%) is the only country in the subcontinent that is ranked above India.

In 1960, with a population of 45.05 crore people, India had the second-highest population behind China (66.7 crore). By the end of 2022, India’s population stood at 1.417 billion, surpassing China’s 1.412 billion, making India the most populous country in the world, according to the World Population Review.

Source: World Bank and Our World in Data

vignesh.r@thehindu.co.in and rebecca.varghese@thehindu.co.in

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The Reserve Bank of India (RBI).
| Photo Credit: REUTERS

The RBI on August 10 retained the GDP growth projection for current fiscal year at 6.5% and raised the inflation projection marginally to 5.4% due to spike in vegetable prices, including tomatoes.

Unveiling the bi-monthly monetary policy, Reserve Bank Governor Shaktikanta Das said domestic economic activity is maintaining resilience.

He also said the recovery in kharif sowing and rural incomes, the buoyancy in services and consumer optimism should support household consumption.

“Headwinds from weak global demand, volatility in global financial markets, geopolitical tensions and geoeconomic fragmentation, however, pose risks to the outlook,” Mr. Das said.

Editorial | Optical relief: On headline inflation 

Taking all these factors into consideration, real GDP growth for 2023-24 is projected at 6.5% with Q1 at 8%; Q2 at 6.5%; Q3 at 6.0%; and Q4 at 5.7%.

Real GDP growth for Q1 of 2024-25 is projected at 6.6%.

On inflation, the Governor said the spike in vegetable prices, led by tomatoes, would exert sizeable upside pressures on the near-term headline inflation trajectory.

“This jump is, however, likely to correct with fresh market arrivals,” he said, and added there has been significant improvement in the progress of the monsoon and kharif sowing in July.

However, Mr. Das added the impact of the uneven rainfall distribution warrants careful monitoring.

Consumer Price Index (CPI) based retail inflation is projected at 5.4% for 2023-24, the Governor said.

The CPI for Q2 has been projected at 6.2%, Q3 at 5.7% and Q4 at 5.2%, with risks evenly balanced.

Also Read | Rising food prices may undo recent respite from inflation

The retail inflation for Q1 of 2024-25 is projected at 5.2%.

Headline CPI inflation picked up from 4.3% in May to 4.8% in June, driven largely by food group dynamics on the back of higher prices of vegetables, eggs, meat, fish, cereals, pulses and spices.