In its economic outlook, Deloitte India predicts that India’s economy will expand by between 6% and 6.3% in the current fiscal year ending on March 31, 2024, with growth exceeding 7% over the next two years if global uncertainties subside.
Several economic indicators, such as constrained labor markets and reduced risk spreads in the aftermath of the US banking crisis, suggest that downside risks to global development are diminishing as the likelihood of a recession in major industrialized nations this year decreases.
According to the economic prognosis, there are still significant uncertainties surrounding the actions of the central banks of major economies and the movements of energy prices.
“Despite ongoing global uncertainties, India’s economy remains robust,” the report stated. Considering the resiliency of the economy, Deloitte is optimistic about the future and has issued its forecast for this year and the following. Deloitte anticipates India’s growth to be between 6% and 6.3% in FY 2023–24, with an improved outlook thereafter. If global uncertainties subside, growth is expected to exceed 7% over the next two years, according to the report.
“India is currently experiencing a Goldilocks period. Our growth projections for FY 2023-24 are comparable to our April projections, except that higher-than-anticipated growth in FY2022-23 has increased our comparison base. Given the buoyancy of the economy, we have increased the lower limit of our range,” said Rumki Majumdar, economist at Deloitte India.
As evidenced by the sales of mid- to high-end automobiles, the number of UPI transactions, and domestic air passenger traffic data, urban demand conditions have remained robust. Tractor sales, IIP non-durable products, and MGNREGA data indicate that rural demand, which had been lagging, has been on the rise recently.
Investment is also gaining momentum. Despite rising interest rates, the credit-deposit ratio has continued to progress significantly from the pandemic lows. “The majority of lending occurs in the industry and services sectors. This indicates an increase in investment, which indicates that the supply side is preparing to meet rising demand,” Majumdar added. The first quarter inflation rate was 4.5%, the lowest since the third quarter of 2019. Collections of the Goods and Services Tax (GST) remain robust, indicating that revenue buoyancy will aid in reducing the budgeted fiscal deficit to GDP ratio.
Among global hazards, Deloitte’s economic forecast emphasizes the significance and future implications of Western monetary policies.
The policy rate differences between the three main central banks – the US Federal Reserve (Fed), the European Central Bank (ECB), and the Bank of England (BoE) – have fluctuated by 1,390 basis points over the course of 18 months.
“Yet, these nations have been unable to control inflation. In these countries, the 12-month average inflation after the first policy rate increase is significantly greater than the 12-month average inflation before the hike. India has had greater success in controlling inflation with relatively less policy tightening, according to the report.
In countries that had ultra-loose monetary policies for more than a decade, liquidity conditions have been constricted too fast by an aggressive monetary policy tightening. Due to the fact that these countries are home to a significant proportion of global investors, this aggressive measure has caused capital outflows from emerging countries.
Deloitte does not anticipate these nations to reduce interest rates anytime soon. “The headline inflation rate remains above the 2% target set by the central bank. Clearly, Atras (regression) appears improbable for these Central banks. But Adelante (progress) may also be difficult,” said Majumdar.
The pressure on US banks, the decline in housing demand, and the recent resolution of the debt ceiling crisis will dissuade the Federal Reserve from raising interest rates for an extended period of time. Among domestic threats, inflation ranks first. The threat of El-Nino and a weaker-than-usual monsoon can exert renewed pressure on food prices. We anticipate that the decline in consumer prices will be short-lived as demand increases alongside food prices and price volatility remains elevated. “A quicker recovery of the supply side will be of the utmost importance for long-term price control,” Majumdar added.