A 6% GDP growth is heartening despite RBI’s 6.5% projection

India’s economy is likely to grow in the range of 5.5 per cent to almost six per cent in the current financial year, states Jahangir Aziz, head of emerging market economics at JP Morgan. This has also been endorsed by S&P Global Ratings, which, while asserting that India’s economy has a strong growth track-record, retained its six per cent growth forecast for the current fiscal. No matter if it is lower than the Reserve Bank of India’s 6.5 per cent forecast for FY24. In October, the RBI retained its GDP growth forecast of 6.5 per cent for FY24 and FY25, although it narrowed the range of its quarterly projections for the next financial year. But, this growth needs to be accompanied with the transition to a sustainable economy. Global headwinds will continue to persist and intensify due to high-interest rates, geopolitical tensions and sluggish demand, according to the World Bank. Global economic growth is also set to slow down over the medium term against a background of these combined factors, it said.World Bank forecasts India’s GDP growth at 6.3 per cent for FY24, after expanding at 7.2 per cent in FY23. The expected moderation is due to the challenging external conditions and waning pent-up demand, it maintained.

The RBI now estimates quarterly growth rates in FY25 in the range of 6.3-6.6 per cent against the 5.5-7 per cent it had forecast in April. The central bank’s growth forecast for the current year is on the higher side, with most other estimates closer to six per cent, although there were some upward revisions in the projections, following the release of GDP data for April-June.However, growth is generally seen falling in FY25. Nomura expects the GDP growth to moderate to 5.6 per cent next year from 5.9 per cent in FY24.Data released on August 31 by the statistics ministry showed the economy expanded by 7.8 per cent in April-June, compared with economists' expectations of 7.8 per cent but lower than the RBI's view of eight percent. Thus, Aziz’s view is less optimistic, given the concerns around global growth.The second quarter of this fiscal was already the best global year we have seen in a long, long time. So, it is not going to be surprising if India does well when the rest of the world is growing.

Recently, RBI Governor Shaktikanta Das said that GDP growth for the second quarter of FY24 is likely to surpass expectations, based on early indicators. While Purchasing Managers Index (PMI) for manufacturing and services remain in the strong expansion zone, in contrast to weak manufacturing PMI globally, analysts say, tax collections are robust too, public investment push continues and financial conditions have been supportive. Healthy private corporate sector balance sheets and well-capitalised banks add to India’s resilience. One can only hope that Indian economy continues to move northwards in the future too.