Home Business India's growth outlook stable, expansion expected below potential: Report

India’s growth outlook stable, expansion expected below potential: Report

The depreciating rupee is also adding to the inflationary pressure.


According to a Reuters poll of economists, India’s economy will grow well below its potential over the next two years, with the Reserve Bank of India staying above the midpoint of the tolerance band, despite a recent interest rate hike.

While growth was expected to be faster than in many other economies, it would be too slow to generate the jobs needed to lift millions of people out of poverty in that country, which is typically among the worst in the world for hunger. is one.

Growth likely slowed sharply to an annualized 6.0% in the third quarter, from 13.5% in the second quarter, supported primarily by statistical comparisons from a year ago rather than the new pace. It was expected to fall further to 4.4% in the fourth quarter, according to a Reuters poll from October 13-19.

Growth was expected to average 6.9% in the 2022-23 fiscal year, slightly higher than the International Monetary Fund (IMF) and the World Bank’s estimates of 6.8%. It was forecast to slow to 6.1% next year.

While those figures were only trimmed from previous election moderators, a deteriorating global economic outlook suggests further declines may occur in the coming months.

“India has its own set of domestic challenges: weak employment, negative real wages and weak industrial activity even until the main festive season,” said Kunal Kundu, economist at Societe Generale.

“We believe this will result in the RBI shifting its focus to support growth and offset inflation expectations by engineering a growth slowdown.”

The survey results underscore that the RBI’s interest rate-hike drive, which began only five months ago and according to the survey will end in the first quarter of 2023, has done little to ease the price pressure. Is.

Inflation is felt most acutely by low-income households, who make up a significant portion of the country’s population of about 1.4 billion people.

Like other economies around the world, India has struggled with rising energy prices stemming from Russia’s invasion of Ukraine and a particularly devastating pandemic, from which businesses are still recovering.

India’s retail inflation rose to a five-month high of 7.41% year-on-year in September as food prices rose, raising fears of a rate hike when the central bank meets for its next policy review in December.

While the central bank’s target band for inflation is 2%-6%, the survey shows that inflation will average 6.7% in the year ending March 2023, and 5.2% the following year, up from 6.6% in September and 5.0%. There will be a small upgrade. public opinion.

Shilan Shah, Senior Indian Economist at Capital Economics, said: “Take down food and energy inflation will moderate headline consumer price inflation in the coming months, but strong underlying price pressures mean the decline will be gradual and inflation will remain high.” “

The fall in the rupee, which has lost more than 10% of its value against the dollar this year, is also adding to inflationary pressures through import prices.

Despite the RBI burning through its dollar reserves, the rupee has hit several lifetime lows against the greenback this year and was trading close to 83 per dollar on Wednesday.

The survey shows the RBI taking a soft stance with rates. Despite not having a clear majority, medium-term forecasts suggest that the central bank has raised the repo rate by 50 basis points to 6.40% by the end of March. It was then expected to remain there until the end of 2023.

(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)


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