India’s GDP is projected to grow at 7.8 per cent in the just-concluded financial year 2023-24 and the forecast is for around 6.6 per cent in each of the following two fiscal years, according to OECD’s latest Economic Outlook. The report by the Organisation for Economic Co-operation and Development (OECD) highlights the obstacles to higher growth posed by global near-term developments. India’s domestic demand is expected to be driven by gross capital formation, particularly in the public sector, with private consumption growth remaining sluggish.
The report also emphasizes that exports will continue to grow, especially in services such as information technology and consulting, where India is expected to increase its global market share with the support of foreign investment. Headline inflation is projected to gradually decline, although uncertainty about food inflation remains elevated. The Consumer Price Index (CPI) inflation in India was 4.9 per cent in March, within the Reserve Bank of India’s comfort level of two-six per cent but above the ideal 4 per cent scenario.
Regarding monetary policy, the report suggests that the monetary policy easing is projected to start in the second half of the year once lower inflation is maintained. The RBI recently kept the policy repo rate unchanged at 6.50 per cent, marking the seventh consecutive pause. The report anticipates a first cut in the policy rate in late 2024, with cumulative cuts of up to 125 basis points implemented before March 2026. To address India’s multiple development challenges, especially job creation, the report suggests that the country needs to achieve a higher level of real GDP growth.
In order to further progress, the report recommends avoiding unpredictable export restraints and tax surcharges, reducing subsidies for fertilizers and pesticides, and rationalizing minimum price supports. Additionally, it suggests relaxing requirements to sell produce in state-regulated wholesale markets. The report emphasizes that bold actions in these areas must be accompanied by proactive communication, open dialogue with stakeholders, and regulatory safeguards. Overall, the OECD report provides insights and recommendations for India to continue its economic growth trajectory while addressing key challenges.
