GDP boost! IMF calls India ‘shinning star’; ICRA ups FY24 forecast

Two major financial agencies -- the International Monetary Fund (IMF) and ICRA -- have something positive to say regarding India's economic growth after the economy recorded better-than-expected growth rate in Q2 FY24.

The U.S.-based global financial organisation IMF has called India one of the "star performers" that's estimated to contribute 16% to the global growth in 2023-24, while ratings agency ICRA has upgraded its forecast for the country's FY24 GDP growth to 6.5% from 6.2% earlier.

Nada Choueiri, the mission of India at IMF, while speaking to a news agency, appreciated India's "very robust rate" of growth, saying when compared to peer countries, India is "one of the star performers".

She says being the fastest-growing large economy, India will contribute "more than 16% of global growth this year".

The IMF, in its 2023 Article IV consultation report released on Monday, says the year 2023 saw "robust growth" when it comes to India.

"Headline inflation has, on average, moderated although it remains volatile. Employment has surpassed the pre-pandemic level and, while the informal sector continues to dominate, formalisation has progressed. The financial sector has been resilient...India’s 2023 G20 presidency has demonstrated the country’s important role," says the IMF report.

For the next financial year, the IMF sees "strong" macro stability when it comes to India. Its estimates show the country's real GDP may grow 6.3% each in FY24 and FY25. Both headline inflation and the current account deficit are also expected to improve to 1.8% of GDP in FY24.

The IMF executive board’s assessment on India also appreciates its "prudent" macro policies and "reforms". It commends the RBI's policy actions and measures on ensuring "price stability".

In terms of challenges, the IMF sees "global headwinds" that are causing "growth slowdown" to play its part in obstructing India's GDP uptrend path.

India's economy recorded 7.2% GDP growth in FY23, lower than 9.1% in FY22. The primary factor that contributed to the growth has been "robust consumption" and "strong investment", boosted by huge public capital expenditure. In FY23, the post-pandemic time saw the service export growth rising to a decade high, according to data shared by the IMF.

India also saw stronger-than-expected GDP growth in Q2 FY24 at 7.6% YoY, though slightly lower than 7.8% in the previous Q1 FY24 quarter. Among the core sectors, agriculture, the most consistent one since the pandemic, grew only 1.2% in Q2 but the industry recorded 9-quarter high growth. The services sector, though laggard, grew 5.8%.

Ratings agency ICRA says its Business Activity Monitor, an index of high-frequency indicators, eased to 9.6% in November 2023 from 13% in October 2023, primarily due to fewer working days in the month due to holidays. For December, the trends are mixed, says ICRA, adding that overall there has been a "festival-led uptick" in volume growth across non-agri indicators and sustained deflation in commodity prices. Considering this, the GDP growth in Q3 FY24 is expected to improve than ICRA's earlier estimates.

Consequently, the ICRA's full fiscal year GDP estimate has also moved up to 6.5% from 6.2% projected earlier. However, it's still lower than the RBI-led monetary policy committee's (MPC) recent forecast of 7% economic growth.