OECD slashes India GDP growth forecast to 6.6% in FY23

The Organisation for Economic Co-operation and Development (OECD) has downgraded India's GDP growth forecast to 6.6% for FY 2022-23 from 6.9% projected earlier on moderation in exports and domestic demand and inflation crimping private consumption. The country, however, will remain the second-fastest growing economy in the G20 in the current fiscal year, the Paris-based intergovernmental organisation said in its latest report.

With this, OECD has joined a host of multinational agencies including global banks that have downgraded India's GDP forecast for FY23 citing global economic challenges and soaring inflation. This week, Goldman Sachs Group said it sees India’s economy growing at 5.9% in 2023 on slowing consumer demand due to high-interest rates. Earlier, the International Monetary Fund (IMF) cut India's economic growth in 2022 to 6.8% from 7.4% earlier. Moody's cut India's GDP growth projection for 2022 to 7% from 7.7% earlier on the weak rupee and high crude oil prices.

As per OECD, India's 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," says the report.

Despite decelerating global demand and the tightening of monetary policy to manage inflation, India is the second-fastest growing economy in the G20 in FY23, the OECD report says.

In the next financial year, India's GDP growth is estimated to slow further to 5.7% as exports and domestic demand growth would moderate and inflation will crimp private consumption. With the improving global conditions, the Indian economy will see GDP growing at 6.9% in FY25, said OECD.

In light of global developments, the business climate will also get greatly influenced in India. The data shows India’s oil imports from Russia rose to 16% in April-August 2022 from 2% in FY 2021-22. It is expected to grow further. "The reversal of capital flows has contributed to the rupee’s depreciation against the US dollar. On the fiscal front, the free food programme for the poor, the world’s biggest, has been extended several times (most recently, until end-2022), bringing the cost to almost USD 50 billion since April 2020 (2.6% of FY 2021-22 GDP)," the OECD says, adding that it's necessary to ensure any increase in minimum dietary intakes is sustained once the intervention is phased out.

In its outlook on rising inflation, OECD said CPI inflation will remain above the central bank’s upper limit target of 6% at least until early 2023 and then gradually recede as higher interest rates take effect. High inflation in turn will slow household consumption and delay investment, as financing becomes more expensive. Additionally, exports will be affected by the economic slowdown in advanced countries and geopolitical tensions.

India’s retail inflation fell to a three-month low of 6.77% in October, down from 7.41% in September 2022. This is the 10th consecutive month that retail inflation has remained above the RBI's upper tolerance band of 6%.