India’s GDP growth expected to slow to 6% in 2023-24: CRISIL

Inflation is likely to moderate due to high-base effect but monetary tightening by RBI is estimated to impact economic expansion

India’s economic growth is expected to slow to 6 per cent in 2023-24, sharply lower than the estimated 7 per cent expansion in the current financial year as the global environment has become “gloomier” due to stubbornly high inflation, rate hikes and geopolitical tensions, rating agency CRISIL said on Thursday.

Inflation is likely to moderate due to high-base effect but monetary tightening by the Reserve Bank of India (RBI) is estimated to impact economic expansion in the financial year beginning April 2023.

The peak impact of the rate hikes – 250 basis points since May 2022, which has pushed interest rates above pre-Covid-19 levels — will play out in fiscal 2024, the rating agency said.

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The Consumer Price Index (CPI)-based retail inflation is expected to moderate to an average 5 per cent in 2023-24 from the estimated 6.8 per cent the current fiscal, owing to high-base effect and some softening of crude and commodity prices.

As per data released by the National Statistical Office (NSO) earlier this week, the headline retail inflation eased marginally to 6.44 per cent in February as compared to 6.52 per cent in the previous month but stayed above the RBI’s upper tolerance band of 6 per cent.

“India’s medium-term growth prospects are healthier. Over the next five fiscals, we expect GDP to grow at 6.8 per cent annually, driven by capital and productivity increases,” said Amish Mehta, Managing Director and CEO of CRISIL Ltd.

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What is also good to see is the increasing sustainability footprint of capex. At present, nearly 9 per cent of the infrastructure and industrial capex is green. We see this number rising to 15 per cent by fiscal 2027, Mehta added.

A good rabi harvest would help cool food inflation, while the slowing economy should moderate core inflation.

The risks to inflation are tilted upward, given the ongoing heat wave and the World Meteorological Organization’s prediction that an El Niño warming event is likely over the next couple of months, CRISIL noted in the report.

India’s external vulnerability is expected to decline with a narrower current account deficit (CAD) and modest short term external debt, said Dharmakirti Joshi, chief economist, CRISIL.

While CAD is expected to narrow to 2.4 per cent of GDP ($88 billion) in 2023-24 from an estimated 3.0 per cent ($100 billion) this fiscal, its financing may face challenges as foreign portfolio flows remain volatile and external commercial borrowings are less attractive, Joshi added.