Growth upside surprise good news but risks persist for this fiscal year, experts say

The GDP of Asia’s third largest economy grew 7.2 percent in the fiscal year to March 31, against the previous projection and economists’ expectations of 7 percent growth.

India’s better-than-expected gross domestic product (GDP) growth in the FY23 bodes well for the country’s macroeconomic outlook but economic activities will continue to face domestic and global headwinds this fiscal year, economists said.

The GDP of Asia’s third largest economy grew 7.2 percent in the fiscal year to March 31, against the previous projection and economists’ expectations of 7 percent growth.

Growth rose for the first time in three quarters to 6.1 percent in January-March. The outturn was also higher than economists’ expectation of 5.1 percent.

“Some moderation in growth is expected in FY24 given the uncertainty of the monsoon and as the global economy is facing challenges. However, it may not be severe,” Soumyajit Niyogi, Director, Core Analytical Group at India Ratings & Research, said.

“Our expectation is around 6 percent real GDP growth for FY24. Demand, financing conditions and external demand might not be so supportive.”

Reserve Bank of India (RBI) Governor Shaktikanta Das said last week that he would not be surprised if growth was more than 7 percent in 2022-23.

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The country’s growth momentum is likely to sustain in 2023-24 amid easing inflationary pressures, the RBI said in its annual report, projecting an economic growth rate of 6.5 percent for the year.

Several economists are pegging their growth forecasts below that of the RBI’s.

India’s economy faces several headwinds this year, including slowing global growth, protracted geopolitical tensions and a possible upsurge in financial market volatility.

The cumulative impact of the central bank raising the policy repo rate by 250 basis points during the course of last year could also hit demand.

Besides, there are signs of a moderation of domestic demand as well.

“The concern that I have is that the private sector consumption has not been strong enough,” said Indranil Pan, Chief Economist at Yes Bank. “Demand is already quite weak.”

As of now, Pan expects growth of around 6.1 percent for FY24.

Despite the rebound at the end of the last fiscal year, growth is likely to slow a touch over the coming quarters with higher interest rates still feeding through and fiscal policy turning slightly less supportive, Capital Economics said.

The RBI’s rate-setting panel, which meets next week, will likely hold the repo rate for a second meeting in a row given the recent fall in inflation and its optimistic growth outlook.