Crisil’s projection for FY24 is lower than the Reserve Bank of India‘s 6.4% forecast.
“While the post-pandemic recovery has turned broad-based, with domestic demand returning fast especially for contact-based services, there are fresh headwinds. Global growth is slowing and tighter domestic financial conditions could curtail a consumption lift-off,” the rating company said.
Amid this, moderating domestic inflation could be a relief.
Crisil indicates three major reasons for growth deceleration.
First, the slower world economy on the back of aggressive rate hikes by major central banks would create downside risks to India’s growth. Domestic demand, therefore, will have to do the heavy lifting next fiscal.
Second, the full impact of rate hikes by the Reserve Bank of India (RBI) would be realised next fiscal as monetary policy typically impacts growth with a lag of three-four quarters.Third, India may face volatility in crude and commodity prices, due to the tricky geopolitical situation.
The retail inflation which is expected to moderate to 5% next fiscal from 6.8% this fiscal, owing to a high-base effect, would however be a relief.
“A good rabi harvest would help cool food inflation and a slowing economy to moderate core inflation. The risks to this are, however, tilted upwards, given the ongoing heat wave and the World Meteorological Organization’s prediction that an El Nino warming event is likely in the next couple of months. That can hurt farm output,” Crisil said.
The rating firm expects the Indian economy to grow at 6.8% annually over the next five fiscals, driven by capital and productivity increases.
In parallel, it expects urban incomes to once again outperform rural incomes, leading to continuation of consumption skew towards premium products.
Overall industrial capex is set to rise to nearly Rs 5.7 lakh crore on average between FY23 and FY27 compared with Rs 3.7 lakh crore in the past five fiscals. “While industrial capex gets a push from government policies and new-age opportunities, infrastructure spending will continue to drive 12-16% growth in capex next fiscal. This is to achieve the nearly 75% of the initial targets set under the National Infrastructure Pipeline next fiscal,” it said.