BENGALURU- India’s economy will grow well below its potential over the next two years, with inflation staying above the mid-point of the Reserve Bank of India’s tolerance band despite recent interest rate rises, according to a Reuters poll of economists.
While growth was expected to be faster than many other economies, it would be too slow for the job creation needed to pull tens of millions of people out of poverty in a country typically ranked one of the worst in the world for hunger.
Growth likely slowed sharply to an annual 6.0 percent in the third quarter from 13.5 percent in the second that was supported mainly by statistical comparisons with a year earlier rather than new momentum. It was expected to decelerate further to 4.4 percent in the fourth quarter, according to an Oct. 13-19 Reuters poll.
The median expectation was for 6.9 percent growth in the 2022-23 fiscal year, slightly above International Monetary Fund (IMF) and World Bank projections of 6.8 percent. It was forecast to slow to 6.1 percent next year.
While those figures were only trimmed from the previous poll medians, a deteriorating global economic outlook suggests there may be further downgrades in coming months.
“India has…its own set of domestic challenges: weak employment, negative real wages and weakening industrial activity even in the lead up to the main festive season,” noted KunalKundu, economist at SocieteGenerale.
“This, we believe, will result in the RBI having to shift its focus toward supporting growth and away from anchoring inflation expectations by engineering a growth slowdown.”
The poll results underscore how the RBI’s interest rate-hiking campaign, which only started five months ago and according to the poll will end in the first quarter of 2023, has done little to bring down price pressures. — Reuters
