Domestic economic activity is expected to witness a healthy momentum in FY2024, amid the sustained improvement in urban consumer confidence levels, continuing demand for contact-intensive services and overall recovery in investment activity, even as the demand for goods remains uneven amid softening inflationary pressures.
While the step-up in the budgeted capex targets of the Government of India (GoI) and the states is quite encouraging, a timely kick-off would be crucial to support economic activity amid external headwinds, as reflected in the continued contraction in merchandise exports and a slowdown in services export growth.
Additionally, risks linger on account of a potential development of El Nino conditions, which could impact crop output and farm incomes.
Overall, ICRA projects the FY2024 GDP growth at 6.0%, with risks evenly balanced, and the CPI inflation at 5.1%, with upside risks on account of the impact of El Nino on food inflation in H2FY2024.
Unless there is a significant overshooting in the CPI inflation in Q2-Q4 FY2024 vis-à-vis the Monetary Policy Committee’s (MPC) projections, ICRA foresees an extended pause through FY2024, with the policy stance likely to remain unchanged over the next two policy reviews.
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