S&P Global raises India’s FY24 growth projection to 6.6 pc amid inflation worries

S&P Global Market Intelligence announced on Monday that India’s growth prediction for FY24 was raised upward to 6.6 per cent on the strength of strong growth in the April-June quarter, according to a report by The Economic Times.

This represents a significant change from the 5.9 per cent growth the analytics company predicted in August. However, compared to 5.1 per cent in August, the inflation rate was forecast to grow sharply to 6 per cent in 2023, touching the upper band goal range set by the RBI.

The Economic Times quoted Rajiv Biswas, APAC Chief Economist at S&P Global Market Intelligence as saying, “India's economic growth momentum was buoyant in the April-June quarter, growing at a pace of 7.8 per cent year-on-year, supported by robust growth in domestic demand.”

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S&P is less pessimistic about inflation but in contrast is more positive than the Reserve Bank of India, which expects the economy to grow by 6.5 per cent this fiscal year.

Biswas noted a risk to the prognosis from the recent recovery in global oil prices, noting that there is still a chance of a major El Nino weather event forming in late 2023 and into 2024, which may cause drought conditions and raise prices for important agricultural commodities.

S&P highlighted that due to concerns about global economic development, India's economy is likely to increase at a rate of 6.2 per cent in FY25 as opposed to the 6.1 per cent projected in August. While the company increased its growth projection for 2023 to 2.6 per cent because it was confident about the world's prospects, it decreased its growth forecast for 2024 to 2.3 per cent in its September update.

The paper said that "downside risks include inflation persistence, tighter financial conditions, and escalating geopolitical tensions" and claimed that "the 2024 global growth forecast has been lowered again."

The company noted that while the US is expected to see a marked slowdown with threats to China's growth, the recession in Europe was the baseline scenario for the second half of 2023.

India's exports are anticipated to suffer from slower global growth.

Concerns over inflation

India's inflation rate is anticipated to be high, at 5.3 per cent, in 2024.

The global analytics company raised its worldwide inflation forecast for 2023 and 2024 in response to its prediction of worsening inflation trends across nations.

The Economic Times quoted S&P stating that “the near-term outlook for inflation has deteriorated,” citing increased crude oil prices and a rise in the cost of some industrial non-energy goods.

Given the generally tight labour market circumstances, increased wage and unit labour cost rise, and persistent core inflation rates, particularly for services, the report added.

According to the group, global inflation will reach a high of 5.7 per cent in 2023 and stay over 4 per cent in 2024.

India's inflation somewhat decreased in August from 7.4 per cent to 6.8 per cent, and it is anticipated to continue to reduce as a result of lower tomato prices and a Rs 200 ($2.4) reduction in the cost of LPG cylinders.

High inflation, according to experts, will accelerate the trajectory of rate cuts. At its meeting in early October, the Monetary Policy Committee of the RBI is anticipated to maintain the policy rate at 6.5 per cent.

A similar trajectory for advanced economies may be predicted, according to S&P Global Market Intelligence.

“Central bank rate cuts in advanced economies remain some way off. Our forecast remains that policy rate cuts in advanced economies are unlikely until mid-2024 given the challenging inflationary environment,” The Economic Times quoted S&P as saying.

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