OECD report says India is the fastest growing economy second only to Saudi Arabia, though it must brace for a slowdown in FY24
India’s GDP could post a 6.6% growth rate for the current fiscal year, making it the second fastest growing economy in the G20 behind Saudi Arabia, says the OECD in its latest Economic Outlook report. This is a silver lining amidst the dark clouds of the massive energy shock brought about by the Russia-Ukraine conflict and decelerating global demand.
The OECD report, however, cautions that India’s GDP growth could slow down to around 5.7% during the next financial year over a moderation of domestic demand growth and reduced exports to the demand slump caused by high inflation and tightening monetary supply. However, in spite of these hardships, India could still grow more than most other G20 economies.
The report went on to suggest that the GDP growth rate would revert to around 7% in FY 25 as global pressures ease somewhat. Meanwhile, it predicted that consumer prices would remain above RBI’s upper limit target of 6% till early 2023 before gradually receding as higher interest rates take effect.
Offsetting these forces, at least partially, some improvements can be expected as more contact-intensive services sectors normalize, including international tourism once borders are fully open and restrictions lifted,” the report said.
The vital role of Asian Economies
However, these numbers would remain among one of the brighter spots in a global economy, which would have some of Asia’s biggest economies such as India’s to thank if it does manage to avoid a recession. OECD projects global GDP growth of 3.1% this year and 2.2% in the next, with the UK predicted to be the worst hit among the G20, with only Russia performing worse.
“We are currently facing a very difficult economic outlook. Our central scenario is not a global recession, but a significant growth slowdown for the world economy in 2023, as well as still high, albeit declining, inflation in many countries,” said Álvaro Santos Pereira, OECD Chief Economist, in his analysis.
There’s more that India can do
The Paris-based intergovernmental body that focuses on economic policy has highlighted India’s impressive progress on specific areas such as extending access to financial services across a broader range that include socially disadvantaged. It has taken major steps using its ICT strength via tools such as the UPI that is pushing India towards a cashless economy.
However, the OECD also warned that India shouldn’t sit back on its laurels as there were still several avenues to enhance efficiency, accountability and transparency of public spending. India also must devote significant resources to health and education as well as towards building fiscal space to enhance resilience, the report said.
Economists support the OECD numbers
Meanwhile, economists in India believe that the GDP could grow between 6.2% and 7.2% during the quarter-ended September 2022, largely bolstered by the spike in the services sector and increased government spending. A report in the ET says GDP grew by 13.5% during the April-June quarter though this figure was a result of a low base a year ago.
However, with the base effect on the wane since the first quarter of FY2022, the numbers for the rest of this fiscal year could end up suggesting a waning rate of growth. However, this only presents one side of the picture as any growth India achieves this year needs to be juxtaposed with the recessionary headwinds felt globally.
The article goes on to elaborate that domestic demand played a big role in boosting growth and is likely to do so again in the remaining quarters of this fiscal year. This played a major role as exports lost momentum during the same period. Overall, the economists agree that India could grow at around 7% over the entire fiscal year, the same as OECD predicts.