Crisil, a prominent rating agency, has unveiled its projection of India’s gross domestic product (GDP) growth, estimating it to achieve a 6% growth rate during the fiscal year 2024. This outlook slightly diverges from the National Statistical Organisation’s (NSO) anticipation of a 7% expansion in GDP for the preceding fiscal year, 2023.
Remaining buoyant about the Indian economy’s medium-term trajectory, Crisil offers a sanguine perspective. The agency envisions an average growth rate of 6.8% for the upcoming five fiscal years. This optimistic projection hinges on several factors, including heightened capital investment and improvements in productivity.
However, the global economic landscape remains enshrouded in intricate geopolitical events and persistent inflationary pressures. This scenario has prompted central banks to adopt aggressive interest rate hikes as a measure to counter inflation. Consequently, a more demanding global economic setting has emerged.
Crisil underscores the pivotal role of interest rate hikes in shaping India’s economic course in the fiscal year 2024. The agency underscores that the cumulative increase of 250 basis points in interest rates since May 2022 has elevated rates beyond the levels observed before the Covid-19 pandemic. This influence is poised to unravel in the upcoming fiscal year.
Anticipating a moderation in consumer inflation, Crisil’s forecast predicts an average inflation rate of 5.0% during the fiscal year 2024, marking a decline from the 6.8% recorded in the fiscal year 2023. This moderation is attributed to the confluence of the high-base effect and a reduction in crude oil and commodity prices.
While emphasizing the potential risks associated with inflation, the rating agency cites factors such as an impending heat wave and the World Meteorological Organization’s warning about a potential El Niño warming event. These factors could exert upward pressure on inflation.
In an effort to balance the scales, a positive rabi harvest is anticipated to alleviate food inflation, although the broader economic deceleration is likely to temper core inflation.
Amish Mehta, serving as Crisil’s managing director, underscores India’s promising growth prospects over the medium term. He envisions an annual GDP growth rate of 6.8% for the forthcoming five fiscal years. Additionally, Mehta highlights the escalating emphasis on eco-friendly investments within the infrastructure and industrial sectors. The proportion of green capital expenditure is expected to ascend from 9% to approximately 15% by the fiscal year 2027, yielding far-reaching impacts on revenue, commodity prices, export markets, and capital outlays.
Crisil anticipates a decrease in India’s external vulnerability, propelled by a narrower current account deficit (CAD) and controlled short-term external debt.
Dharmakirti Joshi, the Chief Economist at Crisil, echoes the sentiment of a diminishing CAD while offering insights into the associated financing challenges. He underscores the potential volatility inherent in foreign portfolio flows and highlights the potential wane in the appeal of external commercial borrowings.