“The pent-up demand which had provided thrust to the growth is normalising, exports which had been buoyant are facing headwinds from the global growth slowdown, and credit growth is facing tighter financial conditions,” a report from the agency said.
However, the agency believes that despite factors like sustained government capex, deleveraged corporates, low NPAs, Production-Linked Incentive scheme and the likelihood of global commodity prices remaining subdued, working in the government’s favour growth will not cross the 6% mark in 2023-24.
While Ind-Ra expects services to drive the growth, along with agriculture, it believes industrial growth to remain tepid.
“‘K-shaped recovery, which is neither allowing the consumption demand to become broad-based nor helping the wage growth especially of the population belonging to the lower half of the income pyramid,” it highlighted.
On the inflation front, the agency believes inflation to remain above the RBI’s target of 4% but within its upper tolerance limit of 6%.
“RBI to take a long pause on the repo rate front and watch the core inflation closely, because it is still high and stood at 6.1% in January 2023,” it added.Given the stable inflation, it expects a slight decline in interest rates on 10-year government securities to 7.1-7.2%.
It also expects the government to meet its fiscal deficit target of 5.9% and the current account deficit to decline to 2.5%.
The current account deficit is expected at 3.3% for the current year.
Even with everything in place, Ind-Ra economists highlight that it would take over a decade for the economy to recover from the lost Covid years.