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India's Economic Growth to Moderate in FY24, Expected to Recover in FY25, Says OECD

India's Economic Growth to Moderate in FY24, Expected to Recover in FY25, Says OECD

 According to the latest global economic forecast by the Organisation for Economic Co-operation and Development (OECD), India's economic growth is expected to moderate to 6% in the current financial year. This slowdown is attributed to weak global demand and high-interest rates, which have impacted household consumption. However, the OECD predicts that inflation will moderate and monetary policy will ease in the second half of the fiscal year, leading to a recovery in discretionary household spending and an acceleration of the economy to 7% growth in FY25, supported by improved global conditions. It's worth noting that the OECD's forecast is lower than the Reserve Bank of India's projection of a 6.5% expansion for this fiscal year. The International Monetary Fund had forecasted a 5.9% growth for India in 2023, while the World Bank expects India to grow at 6.3% in the year ending March 2024. The OECD emphasizes that weak global demand and the tightening of monetary policy to manage inflation will constrain India's economy in FY23-24, limiting real GDP growth to 6%.

India's robust growth in agriculture, construction, and services sectors, along with a rebound in manufacturing in the March quarter, supported a 7.2% growth in FY23, surpassing the official forecast of 7%.

Despite India's impressive growth and development, the OECD highlights that the country still faces significant challenges. The agency suggests that creating good jobs is crucial for reducing poverty, particularly among the female population. Increasing investments in education, vocational training, and updating labor laws are recommended to achieve this objective. Additionally, India needs to address its vulnerability to extreme heatwaves and make progress in mobilizing resources for investment in the green economy.

The OECD points out that India's domestic growth prospects are strongly influenced by global developments. The country has taken advantage of discounted Urals oil, increasing its energy imports from Russia. Fertilizer imports from Russia have also risen. Overall, Indian imports from Russia have significantly increased, from USD 9.9 billion (1.6% of total imports) in FY 2021-22 to USD 46.2 billion (6.5%) in FY 2022-23, as noted by the OECD.

India's oil import bill plays a crucial role in its cross-border trade. The trade deficit in merchandise exports grew in FY23 compared to the previous year, and the improvement in service exports was insufficient to offset the imbalance in goods trade.

The OECD suggests that India may experience a mild decline in interest rates starting from mid-2024. The agency expects rates to remain unchanged until the end of the calendar year, waiting for evidence of a durable decrease in core inflation, which is less influenced by weather conditions and geopolitical tensions. During the projection period, fiscal policy should prioritize controlling government debt to maintain its sustainability, reduce interest payments, and allocate resources for public investment in physical and human capital, as well as initiatives to adapt to population aging.

The OECD concludes that the next 25 years leading up to the 2047 centenary of Independence will be crucial for India's efforts to combat poverty. The government's strategy, known as "Amrit Kaal," will require a substantial increase in capital investment outlays, according to the agency.


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