The Finance Ministry expects the country’s GDP growth rate in 2023-24 to “comfortably” exceed its earlier forecast of 6.5 per cent on the back of Q2 GDP growth performance that surprised on the upside at 7.6 per cent.
Already the country’s GDP grew 7.7 per cent in the first half this fiscal. The Union Budget for 2023-24 had pencilled in a nominal GDP of 10.5 per cent for current fiscal.
Without giving a revised projection for GDP growth rate (in real terms) for current fiscal, the Finance Ministry has in the latest half-yearly economic review report also highlighted that the headline inflation outlook is on a declining trend, notwithstanding temporary disruptions from food prices.
The stable downward movement in core inflation and continuing deflation in fuel inflation is aiding this trend, it noted in the report.
The Reserve Bank of India has projected inflation to average at 5.4 per cent in FY24.
“The outlook for India’s external sector is promising, as seen in the November releases of trade balances for both services and merchandise. The relatively stable Indian rupee against the US dollar and other prominent currencies and adequate foreign exchange reserves add to the optimism (on growth outlook).
This sanguinity is visible in the resurgence of foreign portfolio investments since November 2023 and in FY24 in general, compared to FY23. Foreign investment inflows are also helping the Indian stock market indices climb new heights, reflecting broad-based optimism on growth among domestic and foreign investors on growth prospects,” the Finance Ministry report noted.
The risks to growth and stability outlook mainly emanate from outside the country, it added.
India had recorded an economic growth of 7.2 per cent in 2022-23 and 9.1 per cent in 2021-22.
Post the release of the Q2 GDP data by the Statistics Ministry on November 30, the RBI has raised its growth forecast for 2023-24 by 50 basis points to 7 per cent.
Growth forecasts
Several multilateral institutions, rating agencies and global financial majors have immediately upped their growth forecasts for India.
The International Monetary Fund (IMF) is now pegging India’s growth rate at 6.3 percent for 2023 and 2024 after an upward revision citing domestic consumption. IMF now expects India to become a $5-trillion economy by 2028.
On the other hand, S&P Global Ratings expects India to become the third largest economy by 2030. It believes India will be fastest growing economy in the world for the next three years.
JP Morgan, a global bank, expects India to become the third largest economy in the world by 2027. It expects the Indian economy to hit $7 trillion by 2030.
Food inflation
Meanwhile, on food inflation, the Finance Ministry has in its latest report said that the “relatively high food inflation…is a matter of concern”. However, it is important to mention that the present rate of increase in prices is a worldwide phenomenon, it added.
“While India recorded 6.6 per cent food inflation in October, the UK is still grappling with 10.1 per cent, Japan at 9.8 per cent, and South Africa at 9 per cent food inflation,” the finance ministry report said.
India’s food inflation rose to 8.7 per cent in November 2023, retail inflation data released on December 12 showed.