Economic growth to moderate to 6% in FY24, inflation may ease: CRISIL

Full impact of RBI's rate hikes will be next fiscal, says agency while citing three reasons for economy slowing

India’s real gross domestic product (GDP) growth may decelerate to six per cent in fiscal 2024 from the seven per cent estimated by the National Statistical Organisation (NSO) for fiscal 2023, according to CRISIL.

CRISIL’s estimate is lower than Reserve Bank of India’s (RBI) growth projection of 6.4 per cent for fiscal 2024 with risks broadly balanced. Real GDP growth is estimated after subtracting inflation.

CRISIL, a unit of Standard and Poor’s, said there are three reasons for India’s economic growth moderating by 100 basis points in FY24. One, a slowing world—stemming from elevated inflation and aggressive rate hikes by major central banks—will create downside risks to India’s growth. Domestic demand, therefore, will have to do the heavy lifting next fiscal.

Two, the full impact of RBI’s rate hikes will be next fiscal. Monetary moves typically impact growth with a lag of three-four quarters.

Three, the geopolitical situation implies that India will continue to face volatility in crude and commodity prices, CRISIL said.

While India’s economy may slow down, some optimism is in order for inflation. CRISIL said consumer inflation, or prices measured by Consumer Price Index (CPI), is expected to moderate to five per cent next fiscal (Fy24) from 6.8 per cent this fiscal (Fy23), owing to a high-base effect. RBI has estimated CPI inflation at 5.3 per cent for 2023-24 with risks evenly balanced.

A good rabi harvest would help cool food inflation to moderate core inflation.

The risks to this projection, however, if there are heat waves and the World Meteorological Organization’s prediction that an El Niño event is likely in the next couple of months. Such events can hurt farm output, CRISIL said.