‘India’s growth faces headwinds from global slowdown, high interest rates’

India's GDP growth is expected to remain around 6% while inflation is expected to ease to 5% during FY24, S&P Global's chief economist Dharmakirti Joshi told Mint, adding that the current account deficit (CAD) is expected to fall during the current fiscal from last year. 

Going forward, India will see higher growth on the back of infrastructure creation, strong investment, and the efficiency gains from harnessing digital infrastructure, he said. Edited excerpts from an interview.

What are the major headwinds to India's economic growth?

We believe that growth will slow. Last year we were at 7.2% and this fiscal we are at 6%. There are two broad reasons for this. One is that the global economy is slowing. It is spilling over to our exports, and via exports to the sectors that service exports. Manufacturing will face external headwinds. But domestic demand is reasonably strong. We expect pretty good GDP numbers for the first quarter (April-June 2023) and 6% growth is easily achievable.

The second headwind comes from monetary policy. If interest rates are somewhat higher than what they were two years ago, some impact will be felt. These two factors will slow down the economy to 6%. But even at 6%, India will be the fastest-growing G20 country.

How big a challenge is the current food inflation?

Food is one of the most volatile components of inflation. (Rising) food prices are putting pressure on overall inflation. The worry on the food front is that cereals, pulses and vegetables are seeing sustained pressure. It has to be monitored. The monsoon hasn’t played out completely. You can see food inflation rising during normal monsoons. So it's not just the monsoon. Our fingers are crossed on the food inflation front. It is the only threat to inflation this year.

Do you think the central government will be able to stick to its fiscal-deficit targets for FY24, considering both internal and external challenges?

This year we will get to the target due to buoyancy in tax collection, and the government is pushing its investments. The government has also been very conservative on the nominal GDP growth front. So that is also likely to be achieved.

Private investment hasn't really picked up.

Private investment hasn't come to a stage where it is completely broad-based and driven by animal spirit. It is picking up in parts. Interest rates do not influence investment that much. It is the general business environment that affects investments. We have in the past seen higher investment despite higher interest rates. It is the uncertainty that is the issue here.

How will the expiry of Black Sea grain deal affect India?

I don't think India will have to import wheat. The stock right now is higher than it was last year. Having said so, challenges remain. The government will have to be careful with exports (of wheat).