India to grow at 6.4% in FY24 says RBI, projects FY23 growth rate at 7%

• Weak external demand and uncertain global environment would be a drag on domestic growth prospects, said RBI governor Shaktikanta Das.
  
  
• ‘According to our surveys, manufacturing, services and infrastructure sector firms are optimistic about the business outlook,’ he said
  
  
• ‘India has the inherent strength, an enabling policy environment, and strong macroeconomic fundamentals and buffers to deal with the future challenges.’

The Indian economy is projected to grow at 6.4% in 2023-24, said the Reserve Bank of India (RBI) on Wednesday. The real GDP growth rate projected by the RBI measures the growth in gross domestic product adjusted for inflation or deflation.

India’s Economic Survey 2022-2023 released on January 31, a day before the Union Budget, cast a wide net for FY23 GDP growth projection between 6-6.8%. However both RBI and the Survey estimate India’s FY23 growth at 7%.

RBI governor Shaktikanta Das, in his speech after the Monetary Policy Committee meeting on Wednesday, said that while domestic factors seem to show resilience in the economy, the situation remains fluid and uncertain due to weak external demand and the uncertain global environment – factors which would be a drag on domestic growth prospects.

In FY24, he projects first quarter growth at 7.8%, second quarter growth at 6.2%, third quarter growth at 6%, and fourth quarter growth at 5.8%.

“According to our surveys, manufacturing, services and infrastructure sector firms are optimistic about the business outlook. On the other hand, protracted geopolitical tensions, tightening global financial conditions and slowing external demand may continue as downside risks to domestic output,” Das said as he increased base interest rate by 25 basis points to 6.5%.

What do international agencies expect?

The International Monetary Fund (IMF) said recently that it expects the Indian economy to grow by 6.1% in 2023, 70 basis points lower than the 6.8% growth it projected for 2022. The agency measures economic growth by calendar year instead of financial year.

Last November, Goldman Sachs slashed its India GDP growth projects to 5.9% for 2023. It had projected 2022 GDP growth rate at 6.9%, a tad higher than that of the IMF’s. It said that India’s growth momentum will be affected by fading effects of post-Covid reopening, coupled with higher borrowing costs.

“Growth will likely be a tale of two halves, with a slower first half as the reopening boost fades, and monetary tightening weighs on domestic demand. In the second half, growth is likely to re-accelerate as global growth recovers, drag from net exports diminishes, and investment cycle picks up,” said Goldman Sachs according to a Bloomberg report.

Many agencies including CRISIL and S&P had downgraded their growth projections on the Indian economy as the rate of growth had started slowing down after the first two quarters. In fact, RBI itself had changed its estimates twice on how much India will grow in FY23.

Das, who said that the world economic situation is not as grim as it was a few months ago, is confident about the Indian economy, which has emerged stronger after having suffered multiple major shocks in the last three years.

“India has the inherent strength, an enabling policy environment, and strong macroeconomic fundamentals and buffers to deal with the future challenges. I am reminded here of the words of Netaji Subhas Chandra Bose: Never lose your faith in the destiny of India,” said Das.

SEE ALSO

RBI hikes interest rate by 25 bps to 6.5%, says core inflation remains ‘sticky’

Indian economy projected to grow between 6-6.8% in FY24; private capex necessary for job creation: Economic Survey 2023