India’s gross domestic product (GDP) is expected to grow 6.2% in the fiscal year ending in March 2024, being the fastest-growing major economy this fiscal year, according to a Reuters poll of economists. The poll, conducted between September 13 and 20, also projected a 7.2% growth for the current fiscal year, which is slightly lower than the government’s estimate of 7.5%.
Factors behind the growth forecast
The economists cited several factors that could boost India’s economic growth in the next fiscal year, such as increased government spending on infrastructure, improved corporate and banking balance sheets, lower global commodity prices, and a potential revival of private investment. Some of them also expected a faster vaccination drive and a gradual easing of pandemic-related restrictions to support the recovery.
However, they also warned of some downside risks that could hamper the growth prospects, such as a possible third wave of covid-19 infections, a slowdown in global demand, tighter financial conditions, a weak monsoon season, and subdued manufacturing activity. They also noted that the consumption demand, which accounts for about 60% of India’s GDP, remains uneven and largely driven by the higher income groups.
Comparison with other major economies
The Reuters poll showed that India’s projected growth rate of 6.2% for FY24 is higher than that of other major economies, such as China (5.5%), the United States (3.0%), the euro zone (2.3%), and Japan (1.3%). India is also expected to outperform the emerging market average of 4.9% for FY24.
India’s growth performance in FY24 would also mark a significant improvement from the previous fiscal year, when it suffered a record contraction of 7.3% due to the impact of the covid-19 pandemic and the lockdowns imposed to contain it. India was one of the worst-hit economies among the G20 nations in FY23.
Policy implications and challenges
The strong growth outlook for India could have implications for its monetary and fiscal policies in the coming months. The Reserve Bank of India (RBI), which has kept its key interest rate at a record low of 4% since May 2020 to support the economy, may face pressure to tighten its stance if inflation remains above its target range of 2-6%. The RBI has projected an average inflation rate of 5.7% for FY23, which is higher than its previous forecast of 5.1%.
On the fiscal front, the government may face challenges in meeting its budget deficit target of 6.8% of GDP for FY23, as tax revenues have been hit by the pandemic and expenditure needs have increased. The government has announced several stimulus measures to boost the economy, such as a ₹20 lakh crore ($270 billion) relief package in May 2020 and a ₹6 lakh crore ($81 billion) infrastructure spending plan in June 2021.
