Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Economy / Weak global demand, high interest rate to limit India's FY24 growth to 6%: OECD
BackBack

Weak global demand, high interest rate to limit India's FY24 growth to 6%: OECD

OECD has said that moderating inflation and monetary policy easing in the second half of current fiscal will help discretionary household spending to regain momentum, helping the economy to accelerate to 7% growth in FY25, aided by improved global conditions

OECD said that despite an impressive growth and development record, daunting challenges remain for India. (Bloomberg)Premium
OECD said that despite an impressive growth and development record, daunting challenges remain for India. (Bloomberg)

New Delhi: After a higher than expected growth in FY23 aided by strong farm sector output and government spending, India's economic expansion is expected to moderate to 6% in the current financial year on account of weak global demand and the high interest rate that is taking a toll on household consumption, Organisation for Economic Co-operation and Development (OECD) said in its latest global economic forecast released on Wednesday.

OECD, however, has said that moderating inflation and monetary policy easing in the second half of current fiscal will help discretionary household spending to regain momentum, helping the economy to accelerate to 7% growth in FY25, aided by improved global conditions.

OECD's forecast is lower than RBI's forecast of a 6.5% expansion this fiscal. While the International Monetary Fund had in April forecast a 5.9% growth for India this year, the World Bank on Tuesday said India is expected to grow at 6.3% in the year ending March 2024.

"Weak global demand and the effect of monetary policy tightening to manage inflationary pressures will constrain the economy in FY 2023-24, limiting real GDP growth to 6%," OECD said.

Robust growth in agriculture, construction and services sectors and a rebound in manufacturing in the March quarter had supported India's 7.2% growth in FY23 beating the official forecast of 7%.  

OECD said that despite an impressive growth and development record, daunting challenges remain for India. "Creating good jobs is the most promising pathway to reduce poverty, which is particularly high in the female population. Increasing investment in education and vocational training, and updating labour laws, would help to achieve this objective. India is particularly vulnerable to extreme heatwaves and must make progress in mobilising resources for investment in the green economy," said the agency.

OECD pointed out that domestic growth prospects are strongly influenced by global developments, saying that India has seized the opportunity of discounted Urals oil, which has increased Russia’s share in its energy imports. It said fertilizer imports have also risen from Russia. Overall, Indian imports from Russia rose from USD 9.9 billion (1.6% of total imports) in FY 2021-22 to USD 46.2 billion (6.5%) in FY 2022-23, OECD pointed out.

India's oil import bill is crucial as it is a major component of its cross-border trade. India's trade deficit in merchandise exports had gone up in FY23 from the year ago period and the improvement in service exports was insufficient to offset the imbalance in goods trade.

OECD also said that India may see mild interest rate declines from mid-2024. "A long cycle of policy rate increases came to a halt in April. Following one further small increase, rates are expected to remain unchanged until the end of the calendar year, when evidence will confirm whether core inflation, which is less sensitive to weather conditions and geopolitical tensions, has durably diminished," OECD said.

During the projection period, the priority for fiscal policy is to control government debt, so as to keep it at sustainable levels, reduce interest payments, and thereby free resources for public investment in physical and human capital and initiatives to adapt to population aging, the agency said.

"'The next 25 years until the 2047 centenary of Independence will be crucial for India to fight poverty and the government strategy (so-called Amrit Kaal) will require a large increase in capital investment outlays," OECD said.

 

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

ABOUT THE AUTHOR
Gireesh Chandra Prasad
Gireesh has over 22 years of experience in business journalism covering diverse aspects of the economy, including finance, taxation, energy, aviation, corporate and bankruptcy laws, accounting and auditing.
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 07 Jun 2023, 09:45 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App