Annual GDP (Gross Domestic Product) growth of 7.6 per cent is required till 2036-37 to catch up with the pre-pandemic GDP trend, India Ratings & Research (Ind-Ra) said on Tuesday.

The rating agency expects Indian economy to grow at 5.9 per cent in 2023-24. It is lower than the RBI’s projection of 6.4 per cent and IMF’s projection of 6.1 per cent. The Economic Survey had given a projection of 6-6.8 per cent with 6.5 per cent in baseline scenario.

Pre-pandemic trend shows average GDP growth was 6.6 per cent between 2011-12 and 2019-20. However the first year of pandemic recorded a de-growth of 6.6 per cent. FY22 saw of growth of 8.7 per cent which was mainly due to base impact. For the current year, the expectation is 7 per cent. The agency says India needs to grow at 7.6 per cent annually for next 13 fiscal years starting 2024-25 to 2036-37 to catch up with the pre-pandemic GDP trend .

Ind-Ra says it does not expect the growth momentum witnessed in the first half of FY23 (April-September) to sustain in the second half (October-March). NSO estimates GDP growth to drop to 4.5 per cent in the second half from 9.7 per cent in the first. The pent-up demand, which had provided thrust to growth, is normalising, exports, which had been buoyant, are facing headwinds from the global slowdown and credit growth is facing tighter financial conditions. The International Monetary Fund expects the global GDP growth to fall to 2.9 per cent in 2023 from an estimated 3.4 per cent in 2022.

The positives

“Although there are a few positives for India such as - sustained government capex, deleveraged corporates, low NPA in the banking sector, Production-linked Incentive scheme and likelihood of global commodity prices remaining subdued, Ind-Ra believes they are still not sufficient to take the FY24 GDP growth beyond 6 per cent,” says Sunil Kumar Sinha, Principal Economist, Ind-Ra.

Tha agency expects the agricultural sector to grow 3.1 per cent in FY24 against 3.5 per cent in FY23 on the assumption of a normal monsoon in 2023. However, industrial growth is expected to remain tepid because of ‘K-shaped’ recovery, which is neither allowing the consumption demand to become broad based nor helping the wage growth, especially of the population belonging to the lower half of the income pyramid. The agency, therefore, expects the industrial sector to grow 3.9 per cent as against 4.1 per cent and services at 7.1 per cent as against 9.1 per cent.

Inflation expectation

Retail inflation is likely to be at 5.4 per cent in FY24 against 6.6 per cent and wholesale inflation at 1.1 per cent as against 9.2 per cent. “As things stand now and on the basis of the expected inflation trajectory, Ind-Ra expects the RBI to take a long pause on the repo rate front and watch the core inflation closely, because it is still high and was at 6.1 per cent in January,” it said.