The Organisation for Economic Co-operation and Development (OECD), on Tuesday, cut its gross domestic growth forecast for India for the current financial year (FY23) to 6.6 per cent from 6.9 per cent, citing higher medium-term global uncertainty and slowing domestic economic activity.
OECD is the latest of a host of banks, agencies and multilateral institutions which have recently cut their India GDP forecast for FY23 (see chart).
“Economic growth has lost momentum over the summer, due to a combination of erratic rainfall, which impacted sowing activities, and falling purchasing power. Concerns over demand conditions are considerable in services and infrastructure sectors, while consumers have become cautious regarding non-essential spending due to higher prices for food and energy,” the agency said in its latest economic outlook report.
OECD said that tighter financial market conditions were weighing on the demand for capital goods, while the monthly energy and food import bill kept rising and the current account deficit widened in the July-September quarter to 2.9 per cent of GDP.
“Headline inflation remains above 6 per cent mostly due to the trend increase in the price of food. Unemployment estimates suggest improving labour market conditions in both urban and rural areas, but there are few signs of a wage-inflation spiral,” it said.
The agency said that India is set to be the second-fastest growing economy in the G-20 in FY23, despite decelerating global demand and the tightening of monetary policy to manage inflationary pressures.
“GDP growth will slow to 5.7 per cent in FY24, as exports and domestic demand growth moderate. Inflation will crimp private consumption but moderate at the end of the projection period,” it projected.
It said that high medium-term global uncertainty reinforces the importance of continued efforts to raise potential output growth and resilience and that macroeconomic stability should be pursued through monetary policy geared towards anchoring inflation expectations and fiscal policy oriented towards debt control and targeting of current and capital spending.
“Improvements in the business climate, when combined with financial deepening and skills development, can boost investment and infrastructure and create more and better jobs,” OECD said.