In a recent mid-year macroeconomic review, the National Institute of Public Finance and Policy (NIPFP) has forecasted that India’s economic growth will likely decelerate to 6% in the financial year 2023-24 (FY24), down from the 7.2% recorded in FY23. This projected slowdown is attributed to prevailing headwinds in the global economy. The NIPFP analysis takes into consideration various economic indicators and trends, offering valuable insights into the potential trajectory of India’s economy.
Sectoral Performance in Q1
- The review highlights a robust industrial sector performance in the first quarter (Q1), particularly in the construction and consumer non-durables segments.
- However, the agricultural sector’s growth remained subdued, and the services sector experienced sluggish growth during the same period.
Inflation Outlook and Monetary Policy
- The review indicates that retail inflation is forecasted to remain below the 6% limit at 5.1% for the current financial year.
- This lower inflation projection is attributed to the delayed effects of monetary policy transmission and a broad-based decline in food, energy, and core inflation.
- The inflation outlook holds significance in influencing monetary policy decisions and shaping consumer sentiments.
Reserve Bank of India’s (RBI) Perspective
- The RBI maintains its real GDP forecast for FY24 at 6.5% in its recent assessment.
- The projection is based on expectations of heightened rural and urban growth, increased investment activities, and the government’s commitment to higher capital expenditure.
- The central bank, however, revises its inflation estimates, anticipating an inflation rate of 5.4% for FY24.
- The quarterly breakdown of inflation predicts figures of 6.2% for Q2, 5.7% for Q3, and 5.2% for Q4, respectively.
- The RBI’s stance provides insights into India’s economic prospects from a monetary policy standpoint.
Global Economic Context
- The NIPFP’s projection of a 6% growth rate for FY24 is influenced by the broader global economic conditions.
- External factors such as shifts in global trade dynamics, commodity price fluctuations, and uncertainties related to pandemic recovery collectively shape India’s economic performance.