OECD revises India's FY25 growth forecast upward to 6.6%

The Organisation for Economic Co-operation and Development, Thursday, revised India’s FY25 growth forecast upward to 6.6% from 6.2% projected earlier.

“Strong investment and improving business confidence in India are projected to sustain real GDP growth of just over 6½ per cent in both FY25 and FY26, despite relatively sluggish private consumption growth,” OECD said.

“Domestic demand will be driven by gross capital formation, particularly in the public sector, with private consumption growth remaining sluggish,” it further added.

The international group projects the Indian economy to register 7.8% growth in FY24, higher than the 7.6% estimated by the government.

The revision from OECD follows similar upward revisions by other international agencies on the back of strong domestic fundamentals of the Indian economy.

“New supply chain disruptions generated by geopolitical turmoil, food inflation stickiness due to extreme weather episodes, and negative spillovers from fluctuations in global financial markets,” were cited as downside risks by OECD.

OECD said India’s inflation prospects will also improve, as it estimated 4.3% inflation in FY25, falling further to 4.2% in the following fiscal.

India’s inflation declined below the 5% level for the first time in five months in March, but food inflation remained sticky at over 8%.

Given the low inflation outlook, the OECD noted that the Reserve Bank of India will likely institute rate cuts from the second half of 2024, with 125 bps cuts projected before March 2026.

While the organisation was confident of the government meeting its fiscal deficit target of 5.1% in FY25, it said that more needed to be done to address indebtedness in increasing revenues, improving spending efficiency and stronger fiscal rules.

The organisation batted for more reforms in agriculture as well, which supports 44% of the workforce.

On the global front, the OECD projects growth to remain unchanged at 3.1% in 2024.

“The impact of tight monetary conditions continues being felt, particularly in housing and credit markets, but global activity is proving relatively resilient, the decline in inflation continues, and private sector confidence is improving,” it said.