CEA Optimistic, Forecasts 8% GDP Growth in FY24

India's GDP growth projected at 8% in FY24 due to strong Q1-Q3 performance. IMF predicts 7.8% growth for FY24, while RBI estimates 7%. India's growth trend suggests a high likelihood of surpassing 8%. Growth could continue at 7% in FY25, despite dependence on monsoon performance. India's growth potential for post-FY25 is estimated at 6.5-7%, supported by strong balance sheets in financial and corporate sectors. Inflation is expected to moderate to 4% in the coming months. Reserve Bank of India's proposed guidelines for under-construction infrastructure project financing are currently in draft form. India's declining population growth rate contributes to higher per capita income growth.

Chief Economic Adviser V Anantha Nageswaran on Wednesday said there was a high possibility of GDP growth touching 8 percent in FY24 on the back of robust growth registered during the three quarters of the financial year ended March 2024.

India's gross domestic product (GDP) grew by 8.4 percent in the third quarter ended December 2023. In the second quarter, the GDP growth was 7.6 percent while 7.8 percent in the first quarter.

''The IMF has projected a growth rate of 7.8 percent for FY24. But if you look at the trajectory of growth in the first three quarters, obviously, the possibility that the growth rate touches 8 percent is quite high,'' he said at an event organized by NCAER here.

This is higher than RBI's India growth estimate of 7.5 percent for 2023-24.

For the ongoing financial year, he said the International Monetary Fund has an estimate of 6.8 percent but the Reserve Bank of India expects a 7 percent GDP growth for FY25.

''If that materializes, of course, it will be the fourth consecutive year after COVID starting from FY22 that the economy will have grown at 7 percent or more. The RBI forecast of 7 percent for FY25 turns out to be either correct or even underestimated, then it would be the fourth consecutive year of 7 or higher growth rate,'' he said.

However, he said, a lot would depend on how the monsoon shapes up. Although the expectations are that there will be an above-normal monsoon, spatial and temporal distribution will matter.

On the growth beyond FY25, he said, there is a possibility of India growing between 6.5-7 percent because the key difference this decade compared to the last is the one of balance sheet strength in the financial sector and the non-financial sector in the corporate sector as well.

The investment made in supply-side augmentation of both physical and digital infrastructure has placed the economy to pursue non-inflationary growth, he said, adding that this also helps absorb the challenge of overheating.

He also expressed hope that there would be no nasty upside to inflation at the moment and it may moderate further to the median range of 4 percent in the coming months.

''There can always be scenarios in geopolitics that can cause inflation to be more than we expect, but at this point, the baseline scenario is that inflation gradually converges to the mid-point of the target range.'' The government mandates the monetary policy committee to keep inflation within a target range of 2 percent to 6 percent.

He also said that the household sector's net financial savings flows were lower in 2022-23 at 5.1 percent due to the bulk of savings shifting to real sectors.

Asked about the RBI's recent circular on under-construction infra-project financing, he said these are draft guidelines and would not like to comment.

The Reserve Bank of India (RBI) last week proposed to lenders that they set aside higher provisions for under-construction infrastructure projects and asked them to ensure strict monitoring of any emerging stress.

As per the draft norms, the RBI proposed that lenders set aside a provision of 5 percent of the loan amount. This will be reduced to 2.5 percent once a project is operational.

Currently, lenders are required to have a provision of 0.4 percent on project loans that are not overdue or stressed.

Speaking during the event, NCAER Director General Poonam Gupta said, the IMF has projected acceleration in global growth and world trade volumes, decline in inflation rates, and oil prices to remain around the current levels.

Based on its domestic strengths and a favorable global outlook, the Indian economy may be expected to grow at a 7-plus rate this year and next, she said.

More importantly, she said that India’s population growth rate had slowed down from 2.1 percent in the 1990s to almost 1 percent now, thus, translating GDP growth into bigger per capita income.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)