Reflections 2023: Indian sustains fastest GDP growth rate tag

GDP Growth Rate

•  GDP growth rate for the first 3 quarters of FY25 is 6.7%t, 6.5%t, and 6.4% respectively
•  Global GDP growth could be 2.6% in FY24 and 2.1% in FY25
•  IIP growth accelerated to 16-month high of 11.7% in October

Indian economy through 2023 surpassed street expectations as GDP grew 7.6 per cent in Sept quarter (Q2/FY24). The Reserve Bank of India (RBI) revised its forecast for India’s GDP growth, projecting a growth rate of 7 per cent for FY24, with 6.5 per cent and 6 per cent growth rates for Q3 and Q4, respectively. The GDP growth rate for the first three quarters of FY25 is estimated at 6.7 per cent, 6.5 per cent, and 6.4 per cent respectively.

The GDP growth forecast has been estimated under the assumption that global GDP growth could be 2.6 per cent in FY24 and 2.1 per cent in FY25.

Banks’ aggregate deposits increased by 12.2 per cent YoY as of December 1, higher than 9.3 per cent a year ago, whereas credit growth–excluding the impact of the HDFC twins merger–moderated from 17.5 per cent a year ago to 16.4 per cent as on December 1.

India's industrial production (IIP) growth accelerated to 16-month high of 11.7 per cent in October, mainly due to double-digit growth in manufacturing, power and mining sectors’ output. During April-October 2023-24, the IIP growth works out to be 6.9 per cent, up from 5.3 per cent in the corresponding period a year ago.

Volatile food prices weighing on inflation

The overall inflation outlook is expected to be clouded because of volatile and uncertain food prices. India’s retail inflation, which is measured by the consumer price index (CPI), surged to 5.55 per cent in November 2023 from 4.87 per cent in October as against RBI’s tolerance level of 4 per cent. The lowest CPI this year was 4.25 per cent in May In the last two years, CPI hit the highest of 7.79 per cent in April 2022, and the lowest of 4.06 per cent in January 2021.

The repo rate remained at 6.5 per cent since April as RBI MPC on December 6-8 decided to keep rate unchanged for the fifth straight time citing inflationary concerns.

Inflation remains well above the target over the short term, with the projected headline CPI rate of above 5 per cent up to Q1: 2024-25, there is a need to continue the policy support for sustaining the trajectory to the target. Goyal opined that if inflation sustainably approaches 4 per cent by the middle of 2024 real rates can easily become too high if nothing is done. The next meeting of the MPC is scheduled for February 6-8, 2024.