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Business News/ Economy / Can Indian inflation fall below 4% and economic growth remain strong in 2024? Here's what experts say

Can Indian inflation fall below 4% and economic growth remain strong in 2024? Here's what experts say

Indian economy showed resilience in 2023 with strong GDP growth and robust GST collection, but inflation remained above the RBI target.

In its last policy meet, the RBI kept the inflation forecast unchanged. On the other hand, the RBI raised its real GDP growth projection for FY24 to 7 per cent from 6.5 per cent earlier. (Agencies)Premium
In its last policy meet, the RBI kept the inflation forecast unchanged. On the other hand, the RBI raised its real GDP growth projection for FY24 to 7 per cent from 6.5 per cent earlier. (Agencies)

Indian economy showed remarkable resilience in 2023 with strong GDP growth and robust GST collection. However, inflation remained above the 4 per cent target of the Reserve Bank of India (RBI).

India's retail inflation, or consumer price index (CPI)-based inflation, was at 4.87 per cent in October, down from 5.02 per cent in September and 6.83 per cent in August. However, it rebounded in November to a three-month high of 5.5 per cent.

In its last policy meet, the RBI kept the inflation forecast unchanged as it projected Consumer Price Index (CPI)-based inflation, or retail inflation, at 5.4 per cent for FY24, with Q3 projection at 5.6 per cent and Q4 projection at 5.2 per cent. CPI inflation for Q1FY25 is projected at 5.2 per cent, for Q2 at 4 per cent and for Q3 at 4.7 per cent.

On the other hand, the RBI raised its real GDP growth projection for FY24 to 7 per cent from 6.5 per cent earlier with Q3 GDP at 6.5 per cent (against the estimates of 6 per cent earlier) and Q4 GDP at 6 per cent (against the estimates of 5.7 per cent earlier). The real GDP growth projection of the RBI for Q1FY25 is at 6.7 per cent, for Q2FY25 is at 6.5 per cent and for Q3FY25 is at 6.4 per cent.

Mint talked to several experts to gather their perspectives on the trajectory of India's inflation and economic growth in 2024. Here's what they said:

Dr. Manoranjan Sharma, Chief Economist, Infomerics Ratings

Annual retail price inflation in India rose from 4.87 per cent in October to 5.55 per cent in November 2023. Agricultural production was hit by a five-year low monsoon in 2023 due to El Nino. Hence, the MPC will continue to be wary of inflation since the macro prospects are characterised by volatile and uncertain food prices.

India’s GDP for FY24 is likely to grow by 6.7 per cent. Going forward, India would emerge stronger because of important transformative drivers, viz., consumer boom, ascendant middle class and green transition (demand side) and demographic dividend, greater access to finance and strengthened physical and digital infrastructure (supply side). In sum, India is in a sweet spot.

Also Read: India's economy in 2024: A stable growth path is now within sight

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services

Inflation for 2024 is likely to be in the range of 4.6 to 4.8 per cent. Inflation is likely to dip to around 4 per cent by mid-2024 and rise marginally thereafter.

The growth momentum in the economy is strong and therefore 6.6 to 6.8 per cent GDP growth is achievable in 2024 assisted by massive capex by the Centre. But since the US economy is expected to slow down in 2024 and China continues to struggle, India, too will be marginally impacted.

Deepak Jasani, Head of Retail Research at HDFC Securities

India's growth could end up at 6.8-7 per cent in FY24 even as the first half growth has come in at 7.7 per cent. For the Q1 to Q3FY25, we expect the growth rates could come in at 5.9-6.5 per cent partly held back by a high base effect.

Inflation in India could end up at 5.4 per cent in FY24. For the Q1 to Q3FY25, it could remain in the 3.9-5.5 per cent even as the food and fuel inflation could come in lower.

Ashish Naik, Equity Fund Manager, Axis Mutual Fund

Inflation slowed down giving the central bank some respite and allowing it to remain on hold since February 2023. Going forward, the central bank expects inflation to further cool off in the next one year.

The RBI believes that the transmission of the previous rate hikes is still an ongoing process. If inflation is 4 per cent by Sep 2024 as is the forecast, we could see market expectations around future policy build-up in that time frame. We expect the RBI to remain on hold till the second half of 2024.

The economy has made notable strides over the past few years, and it is now among the top five globally. India is also now the fastest-growing large economy and at this pace will contribute to 10 per cent of global growth this year.

The country is rewriting its growth story supported by an improved earnings outlook, de-leveraged corporate balance sheets and

robust inflows from FPIs and DIIs. In our view, all the right ingredients are in place to potentially set the growth momentum further.

Also Read: Long-term inflation outlook at odds with near-term risks: RBI Bulletin

Rahul Singh, CIO-Equities, Tata Mutual Fund

We expect RBI to continue with its stealth-tightening mode. Rate cuts are not expected in the current fiscal. The ten-year G-sec is expected to trade in the range of 7.15 to 7.30 due to these factors.

G-sec buying by FPIs on index inclusion will be positive for bonds. In the medium to long term, flows arising out of a gradual increase in weight in global bond indices will act as additional support to absorb the supply of G-sec by RBI and is positive for rates in general.

The flow of capital from foreign investors would also be beneficial for the rupee in a strong dollar environment. We therefore remain constructive on rates in the medium to long term while remaining watchful in the short term.

The forward PE for nifty is about 20 times which is expensive than the 10-year average. The reason for this premium is because of the quality of growth which is now being led by investment and manufacturing revival that provides greater sustainability.

In addition, the gradual global slowdown puts India in a sweet spot due to (i) higher economic growth versus EMs/China and (ii) lower commodity prices which protect the Indian corporate sector’s margins.

Also Read: India's current account deficit narrows to 1% of GDP in July-September: RBI

Deepak Agrawal, CIO-Debt, Kotak Mahindra AMC

RBI’s MPC in its last December policy kept the FY24 CPI inflation forecast unchanged at 5.4 per cent with April-Dec’24 inflation projected at 4.6 per cent. There is a broader trend of slowing core inflation. In the quarters ahead, we see CPI inflation trending in line or somewhat below RBI estimates.

However, volatile food inflation can widen the range of headline inflation numbers. Also, if OMCs decide to cut fuel prices in the next few weeks, it can further increase the probability of CPI inflation averaging nearly 4.5 per cent next calendar year.

On the growth front, despite the global economy showing some signs of a slowdown, India remained the fastest-growing large economy in the world. India’s real GDP growth surprised positively at 7.6 per cent YoY Q2FY24, exceeding all forecasts.

With growth likely to be sustained in the remainder of FY24, the real GDP growth projection for FY24 was increased significantly from 6.5 per cent to 7 per cent by RBI.

We believe there are downside risks to growth in the coming months from a slowdown in investment and consumption, coupled with global spillovers, along with risks to the sustainability of rural consumption demand and the possibility of weak agriculture output-based rabi sowing trends.

Religare Broking

As we step into 2024, inflation is moderating, interest rates are steady and GDP growth is picking up pace as well as healthy inflow from FII’s is keeping the sentiments optimistic for the Indian markets. 

Maintaining the positive tone for 2024, there is high anticipation that the Indian economy will continue to emerge as the fastest-growing economy as compared to others because of its resilient performance in the past as compared to global challenges, robust demand environment, and continuous investment towards infrastructure and boosting economic growth.

Besides, we have an optimistic view on gold prices as we anticipate it to further rally on the back of healthy demand from central banks across countries, depreciation of the dollar index, ongoing geopolitical tensions and expectation of a cut in interest rates by the US Fed in the near future.

Read all economy-related news here

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 27 Dec 2023, 05:33 PM IST
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