India’s economic growth outlook stagnates, stuck in lower gear: Reuters Poll

By Vivek Mishra

BENGALURU (Reuters) – India’s economy is set to grow well below potential over the next two years, with inflation remaining above the midpoint of the Reserve Bank of India’s tolerance range, according to a Reuters poll of economists.

Although growth was expected to be faster than many other economies, it would be too slow for the job creation needed to lift tens of millions out of poverty in a country typically considered one of the worst in the world for hunger.

Growth likely slowed sharply to 6.0% in the third quarter versus 13.5% in the second quarter, mainly supported by statistical year-on-year comparisons rather than fresh impetus. It should slow further to 4.4% in the fourth quarter, according to a Reuters poll from Oct. 13-19.

The median expectation was for 6.9% growth in fiscal 2022-23, slightly above the International Monetary Fund (IMF) and World Bank forecasts of 6.8%. It was forecast to slow to 6.1% next year.

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While these numbers have only been removed from previous survey medians, a deteriorating global economic outlook suggests there could be more downgrades in the coming months.

“India has… its own domestic challenges: weak employment, negative real wages and flagging industrial activity even in the run-up to the main holiday,” noted Kunal Kundu, economist at Societe Generale.

“We believe this will result in the RBI having to shift its focus towards supporting growth and away from anchoring inflation expectations by framing a growth slowdown.”

The survey results underscore that the RBI’s rate hike campaign, which started just five months ago and is expected to end in the first quarter of 2023, according to the survey, has done little to alleviate price pressures.

Inflation is felt most severely by low-income households, which make up a significant portion of the country’s population of about 1.4 billion people.

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Like other economies around the world, India has been grappling with soaring energy prices on the back of Russia’s invasion of Ukraine and a particularly devastating pandemic from which businesses are still recovering.

India’s retail inflation accelerated to a five-month high of 7.41%y/y in September as food prices soared, raising fears of further rate hikes when the central bank meets for its next monetary policy review in December.

While the central bank’s target range for inflation is 2% to 6%, the survey showed that inflation would average 6.7% in the year to March 2023 and 5.2% the following year, a small increase from 6, 6% and 5.0% in the September survey.

“A reduction in food and energy inflation will drag overall consumer price inflation lower in the coming months, but strong underlying price pressures mean the decline will be gradual and inflation will remain elevated,” noted Shilan Shah, senior India economist at Capital Economics.

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A falling rupee, which has lost over 10% of its value against the dollar this year, is adding to inflationary pressures from import prices.

Despite the RBI depleting its dollar reserves, the rupee has hit multiple lifetime lows against the greenback this year, trading at nearly 83 per dollar on Wednesday.

The survey showed that the RBI is taking a softer approach to interest rates. Despite the lack of a clear majority, median forecasts showed that the central bank would hike the repo rate by another 50 basis points to 6.40% by the end of March. It should then remain there until the end of 2023.

(Additional articles from the Reuters Global Long-Term Economic Outlook package:)

(Reporting by Vivek Mishra; Survey and analysis by Devayani Sathyan and Veronica Khongwir; Editing by Hari Kishan, Ross Finley and Bernadette Baum)

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