We have revised our growth outlook for the current fiscal to 7.0% from 7.3% since the global economy is slowing at a faster pace than expected and financial conditions have begun to tighten gradually. The risks to global growth are higher for 2023 because advanced countries are expected to slow down sharply. 

S&P Global has slashed the gross domestic product (GDP) growth for the United States (US) growth for 2023 to a paltry 0.2% and euro zone growth to an as pallid 0.3%. The risks around the baseline remain on the downside. 

How does this impact India? 

We have cut India’s growth forecast since our growth cycles have become fairly well synchronised with advanced countries with increasing linkages. Thus, India cannot avoid the short-term pain of the sharp slowdown in advanced countries. The second reason is that the peak impact of interest rate hikes and tightening financial conditions on growth will play out next fiscal. 

Accordingly, we have lowered our GDP growth forecast for fiscal 2024 to 6.0 from 6.5%. 

Even then, India will continue to be a global growth outperformer in this and next fiscals.

Typically, global slowdowns soften crude and commodity prices, which eases the burden on India’s imports. However, this time around, the ongoing geopolitical stress is limiting the decline in their prices. We now estimate current account deficit for this fiscal at 3.2% of GDP from 3.0% forecast earlier. 

Recent data release has brought some cheer: Industrial activity picked up in September and inflation nudged down in October. 

But it’s a bit early to uncork the bubbly. The fall in consumer inflation to 6.8% in October from 7.4% in September was largely high base effect driven. Core inflation continues to be sticky around 6.0% and food inflation risks persist. Not only did on year industrial production growth improve in September to 3.1% from -0.7% in August it also expanded sequentially. The support to industrial activity is largely coming from government led capex. 

That said, the K-shaped recovery in the economy is visible as the lopsided demand is tilted towards consumption of higher ticket items. 

All eyes are on the upcoming monetary policy as it could signal the end of the current rate hike cycle. We expect the Reserve Bank of India to hike rates by at least 25 basis points, before entering a wait and watch mode.