India Ratings and Research expects the GDP to grow 5.9 percent year-on-year in FY24, much lower than the National Statistical Organisation’s estimate of 7.0 percent. The agency believes that the GDP growth will be directly impacted by the heatwave that India is witnessing. It also added that demand in the system is facing headwinds from global growth slowdown.
“The economic survey and CEA speak about 6-6.5 percent growth. But a lot has happened since the presentation of the survey. The main issue right now is the heatwave that we are witnessing. It is going to have an impact on agriculture and in turn on the wages growth that we are expecting from the agriculture sector and households,” said Devendra Kumar Pant, Chief Economist, India Ratings & Research.
The report suggests that an annual GDP growth of 7.6 percent is required till FY37 to catch up with the pre-pandemic GDP trends.
The rating agency’s report on the economic outlook of India noted that even though recovery is on course but certain risks will have a bearing on growth. The report particularly noted that the growth in manufacturing sector is still lagging and the consumption demand is not broad based.
The decline in nominal wage growth in the household sector from 8.2 percent in FY12-16 to 5.7 percent in FY17-21 is a negative when it comes to sustained recovery in consumption demand.
The ratings agency expects industrial sector to grow at 3.9 percent year-on-year compared to NSO’s AE estimate of 4.1 percent. The agency said that the industrial growth momentum will remain tepid because of a K-shaped recovery, which is not allowing consumption demand to become broad based.
The agency said that inflation and commodity prices are the major risks to the revival of investment cycle. “Coming to the fault line. The biggest risk to the economy globally is inflation. The way the inflation is out of control, the monetary policy response is going to kill some demand. If inflation remains high, the real wage growth will go down which will lead to slower growth of the consumption expenditure, which in turn means lower investment growth,” said Devendra Kumar Pant, Chief Economist, India Ratings & Research.
