India's growth likely to surpass 7% in two years, inflation top risk: Deloitte

Expressing optimism about India's economic growth, Deloitte said the country continues to see strong economic activity and its growth is likely to surpass 7% over the next two years.  

"Amid continuing global uncertainties, India continues to see strong economic activity. The last quarter's GDP data was pleasantly surprising but not completely unexpected. Several high-frequency indicators point to the building momentum in domestic demand," Deloitte said in a report.

"Deloitte expects India to grow between 6% and 6.3% in FY 2023–24 and have a stronger outlook thereafter. In fact, if global uncertainties recede, we expect growth to surpass 7% over the next two years," said Deloitte.

According to Deloitte, investment is also showing 'traction' and the credit-deposit ratio has continued to improve strongly from the lows of the pandemic despite the rising interest rates. "Most of the lending is happening in the industry and services sector. This points to improving investment, which means that the supply side is gearing up to meet the rising demand," said Rumki Majumdar, Economist, Deloitte India in the India economic outlook report.

The report, however, red flags the inflation risk. "Among domestic risks, inflation is topmost. The risk of El-Nino and a below-normal monsoon can bring back pressure on food prices," it said. "We expect the fall in consumer prices to be short-lived as demand picks up along with food prices and the uncertainties around prices remain high. A quicker rebound in the supply side will be of utmost importance for keeping prices under check in the long run," Majumdar noted in the report.

Inflation in the first quarter was 4.5%, the lowest since the quarter of September 2019. GST collections remain strong, suggesting that revenue buoyancy will aid in improving the budgeted fiscal deficit ratio to GDP.