Axis Bank estimates India's potential growth to be around 7%
Axis Bank's Chief Economist, Neelkanth Mishra, predicts a robust 7% or higher GDP growth for India in FY24, despite potential global challenges that could slow down growth in FY25. In the bank's India Economic and Market Outlook 2024 report, Mishra mentions that India's domestic resilience will continue to counterbalance global issues. However, he remains cautious about India's FY25 growth, estimating it at 6.5% due to increasing global headwinds and unsustainable fiscal support in the US.
Factors contributing to India's GDP growth
India's GDP growth has shown remarkable resilience in the face of hurdles like fiscal consolidation, rising domestic interest rates, tightening liquidity conditions, and decelerating exports of goods and services. Axis Bank expects that trend-growth estimates for India will be revised to 7% or higher, fueled by a cyclical recovery in capital formation and structural drivers. Mishra also expects core inflation to gradually decrease as the GDP gap compared to the pre-pandemic path narrows but remains at 1.3 years of growth.
Challenges and policy implications
According to Mishra, the challenges will stem from fluctuations in food inflation, causing inflation to stay above the mid-point of the target for most of next year. He suggests that tight liquidity conditions, equivalent to a 25-30 bps rate hike, could ease once global risks subside. If the government sticks to a 4.5% fiscal deficit in FY26, bond yields may also relax.
India's growth in line with the RBI's revised growth assessment
India's GDP hit 7.6% growth in the September quarter, down from 7.8% in the previous quarter. The Reserve Bank of India's (RBI) initially projected a 6.5% growth but revised it to 7% on Friday. The government's growth estimate for FY24 is in line with RBI's revised growth assessment of 7%, Economic Affairs Secretary Ajay Seth said on Friday.
