Crisil, a prominent rating agency, anticipates India’s gross domestic product (GDP) growth to reach 6% in the fiscal year 2024. This projection is lower than the 7% estimated by the National Statistical Organisation (NSO) for the fiscal year 2023.
Medium-Term Growth Outlook:
Crisil offers an optimistic medium-term outlook for the Indian economy. The agency foresees the economy maintaining an average growth rate of 6.8% over the next five fiscal years. This projection is driven by factors such as increased capital investment and productivity enhancements.
Global Challenges and Economic Impact:
The global economic environment is currently clouded by complex geopolitical events and persistently high inflation. As a result, central banks have resorted to sharp interest rate hikes to counter inflationary pressures, leading to a more challenging global landscape.
Domestic Factors and Interest Rate Impact:
Crisil identifies the peak effect of interest rate hikes as a crucial factor for the Indian economy in fiscal year 2024. The agency notes that the cumulative increase of 250 basis points in interest rates since May 2022 has elevated rates above pre-Covid-19 levels. This impact is expected to unfold in the coming fiscal year.
Inflation and Moderation:
Consumer inflation in India is predicted to moderate in the upcoming fiscal year. Crisil forecasts an average inflation rate of 5.0% in fiscal year 2024, a decrease from 6.8% in fiscal year 2023. This moderation is attributed to the high-base effect and a reduction in crude and commodity prices.
Inflation Risks and Factors:
The rating agency highlights the potential risks to inflation. It cites a heat wave and the World Meteorological Organization’s forecast of a possible El Niño warming event in the next few months as factors that could contribute to upward pressure on inflation.
Harvest Impact and Core Inflation:
A positive rabi harvest is expected to mitigate food inflation, while the overall slowdown of the economy is likely to dampen core inflation.
Infrastructure and Climate Mitigation:
Amish Mehta, the managing director of Crisil, emphasizes the country’s promising medium-term growth prospects. He anticipates GDP growth of 6.8% annually over the next five fiscal years. Mehta also points out the increasing emphasis on green investments in infrastructure and industry, with the proportion of green capex rising from 9% to an estimated 15% by fiscal year 2027. Climate risk mitigation efforts will have far-reaching impacts on revenue, commodity prices, export markets, and capital spending.
External Vulnerability and Financial Outlook:
Crisil expects a reduction in India’s external vulnerability, driven by a narrower current account deficit (CAD) and moderate short-term external debt.
Insights from Chief Economist:
Dharmakirti Joshi, Chief Economist at Crisil, echoes the expectation of a decreased CAD and offers insights into the challenges faced in its financing. He highlights the potential volatility of foreign portfolio flows and notes that external commercial borrowings might become less appealing.