India’s GDP growth is expected to decelerate 100 bps in FY24 due to slowing global growth on the back of elevated inflation and aggressive rate hikes by major central banks.

Further, the full impact of RBI’s rate hikes will manifest in FY24, which combined with continued volatility in crude and commodity prices, will weigh on growth. Slowing global growth is also expected to reduce demand for India’s exports and affect domestic industrial activity in those sectors. 

“While the post-pandemic recovery has turned broad-based, with domestic demand returning fast, especially for contact-based services, there are fresh headwinds. Global growth is slowing and tighter domestic financial conditions could curtail a consumption lift-off,” CRISIL said.

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It pegged global GDP growth to moderate to 2.2 per cent in 2023 from 3.4 per cent in 2022.

On the other hand, consumer inflation is expected to moderate to 5 per cent in FY24 from 6.8 per cent in FY23 owing to a high-base effect and a good rabi harvest.

Risks to inflation include the ongoing heat wave and potential El Niño impact, which could impact farm output, the agency said in its India Outlook for FY24 titled ‘Rider in the Storm’. 

“While goods inflation has already risen sharply, services inflation is gradually catching up as well,” it said, adding that core inflation is expected to come down as demand moderates, but will still remain above overall inflation.

Economic resilience 

Amid a pandemic, geopolitical conflict, climate change, and central bank actions, the Indian economy has remained resilient, particularly in the absence of a direct, large fiscal push to consumption.

Growth patterns have highlighted that the economy recovered faster in nominal terms than in real terms due to high inflation, whereas official data revisions released in February revealed that the economy was more resilient than estimated earlier.

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The recovery has been led by higher government spending on infrastructure creation and welfare schemes, and buoyant global demand which lifted exports from the manufacturing sector, IT and IT-enabled, and other professional services.

However, CRISIL expects that the new set of estimates due in May could see major revisions in exports, private consumption, and fixed investment as the revival in private consumption has been stronger-than-expected post-pandemic, while government consumption normalised.