India's gross domestic product is expected to expand by 5.8% in the calendar year 2023 and 6.7% in 2024, aided by resilient domestic demand, according to a report by the United Nations.

However, higher interest rates and weaker external demand will continue to weigh on investment and exports in 2023, the UN says in a mid-year update for its World Economic Situation and Prospects report.

Inflation in India is expected to decelerate to 5.5% in 2023 as global commodity prices moderate and slower currency depreciation reduces imported inflation, the report released by the UN's Department of Economic and Social Affairs says.

India's retail inflation, measured by the All-India Consumer Price Index (CPI), hit an 18-month low of 4.7% in April compared with 5.66% in March on easing food prices. Inflation has remained within the Reserve Bank of India's (RBI) target band of 4%-6% for the second straight month.

Inflation rates in Pakistan and Sri Lanka are expected to remain in double digits in the coming months owing to weakening local currencies and supply-side constraints, the UN says.

The United Nations' report comes a month after the International Monetary Fund (IMF) slashed India's GDP growth forecast to 5.9% for the financial year 2023-24, down 20 basis points compared with the 6.1% projected earlier. The World Bank too had lowered India's GDP growth forecast to 6.3% for FY24 from 6.6% citing lower consumption growth and challenging external conditions. Asian Development Bank (ADB) had also revised its forecast for India's GDP growth to 6.4% for FY24.

On April 6, the Reserve Bank of India's monetary policy committee marginally hiked its GDP forecast for the financial year 2023-24 to 6.5% from 6.4%. The MPC kept the policy rate unchanged at 6.5% in April 2023, after a cumulative increase of 250 basis points since May 2022.

"The steady growth in contact-intensive services should be positive for urban demand. The government's focus on capital expenditure, capacity utilisation above long-period average and moderating commodity prices should bolster manufacturing and investment activity. The drag from net external demand may continue due to increased global headwinds. The protracted geopolitical tensions and global financial market volatility pose downside risks to the outlook. Taking all these factors into consideration, real GDP growth for 2023-24 is projected at 6.5%, with Q1 at 7.8%; Q2 at 6.2%; Q3 at 6.1%; and Q4 at 5.9%," said RBI governor Shaktikanta Das.

As per the minutes of the monetary policy committee's April meeting, MPC member Jayanth R. Varma cautioned that early warning signs of a possible slowdown are visible to a greater extent. Another MPC member Shashanka Bhide said that the growth performance points to both uneven growth across production sectors and subdued growth in the more recent quarters of FY23.

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