“We are impressed by the reforms India has been taking over the years. Also, steps like trying to open up the economy. We want India to keep the reform state of mind,” said Alvaro Santos Pereira, acting chief economist, OECD.
The Reserve Bank of India has pegged India’s FY24 growth at 6.4%. The International Monetary Fund has projected it at 6.1% for FY24.
Pereira said on the fiscal front, the government has tried to address some of the shortcomings through tax reforms. “More can be done there,” he added.
OECD revised India’s inflation estimates for FY24 upward to 5.8%, from the 5% projected earlier. It expects inflation to fall to 4.2% in FY25. India’s inflation has averaged 6.48% for January and February, above RBI‘s target band of 2-6%.
Highlighting that inflation pressures and a rise in policy rates in advanced economies will limit the room of manoeuvrability for emerging markets, the OECD expects India only to start lowering rates from 2024.
RBI’s Monetary Policy Committee raised rates to a five-year high of 6.5% in February. Economists expect another 0.25 percentage point hike in April meeting.
Global economy
A decline in global energy and food prices and China’s reopening have prompted OECD to revise its global growth outlook upwards for 2023.
The report projected the global economy to register a 2.6% growth in 2023, up from 2.2% in November.
The Federal Reserve and the European Central Bank must press ahead with interest-rate increases and not be blown off course by the fragility of the global economic recovery and vulnerabilities in the financial system, the OECD said in its Interim Economic Outlook report.
It cautioned that the pace of global economic expansion will remain below trend in 2023 and 2024, however, with risks tilted to the downside.
Crucially, price pressures are more intense than previously expected, driven by rising costs in services, high profits in some sectors and tight labour markets.
“Projected global growth over 2023-24 would be weaker than in any two-year period since the Global Financial Crisis, excluding the slump at the beginning of the pandemic,” OECD said.
The report highlighted downside risks to global growth forecasts from the Ukraine conflict, trade tensions, fragmentation of global value chains and rising interest rates.