India Ratings and Research (Ind-Ra) has revised its GDP growth estimate for the current fiscal year upward to 6.7% from the earlier 6.2%, citing a resilient economy, sustained government capital expenditure, and the potential for a new private corporate capital expenditure cycle. The agency acknowledges risks such as weak global growth, trade uncertainties, and volatile geopolitical situations that may limit India’s GDP growth.
Positive Drivers: The upgrade is attributed to the resilience of the Indian economy, sustained government capex, a deleveraged corporate/banking sector balance sheet, and the potential for a new private corporate capex cycle. Business and software services exports, along with remittances from abroad, contribute to enduring momentum.
- Consumption Challenges: Ind-Ra notes that consumption demand lacks widespread distribution, emphasizing the importance of wage growth for overall consumption. Real wage growth for lower-income households is crucial for a sustainable recovery, as current consumption demand is biased towards higher-income households.
- Wage-Growth Impact: Ind-Ra’s computations suggest that a 1% increase in real wages could potentially lead to a 1.12% growth in real private final consumption expenditure (PFCE), contributing to a 64 basis point increase in GDP growth.
- RBI’s Projections: The Reserve Bank of India anticipates a sequential slowdown in GDP growth in the last two quarters of FY24, projecting an overall GDP of 7%.
Inflation Outlook: Ind-Ra expects average retail and wholesale inflation to be 5.3% and 0.6%, respectively, in FY24.
Important Questions Related to Exams
What factors contributed to Ind-Ra’s upward revision of India’s GDP growth forecast for FY’24?
- How does Ind-Ra emphasize the importance of wage growth in achieving sustainable consumption demand?
- What are the key challenges and risks highlighted by Ind-Ra that could potentially limit India’s GDP growth in the current fiscal year?
According to Ind-Ra, what is the expected impact of a 1% increase in real wages on the growth of real private final consumption expenditure (PFCE) and overall GDP growth?
Please provide your answers in the comment section!!