The Reserve Bank of India’s upward revision in the gross domestic product (GDP) growth forecast for the current fiscal year to 6.5% from the earlier 6.4% is optimistic in the backdrop of slowing private consumption and continued global uncertainties, economists said. It also bucks the trend of downward revisions, albeit modest, of the rate of expansion of the Indian economy by several agencies including the World Bank and the ADB.

The IMF expects the growth to slip to 6.1% in FY24, from 6.8% in FY23 even as the country would remain a “bright spot” in the global economic landscape.

The Monetary Policy Committee (MPC) of the RBI also forecast retail inflation to moderate to 5.2% in FY24 from its February estimate of 5.3%, citing “softening crude prices” and likely easing of food prices. But not many buy this view, in view of the renewed uncertainties on the crude oil front after the recent OPEC+ decision to cut production and lingering concerns over high prices prominent items in the food basket, including milk and certain pulses.

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The MPC’s growth outlook was based on factors including robust rabi production that has improved prospects for the rural economy, steady growth in contact-intensive services as well as the government’s focus on capital expenditure. RBI’s surveys also pointed out that businesses and consumers are optimistic about the future outlook.

“Taking all these factors into consideration, real GDP growth for 2023-24 is projected at 6.5% with Q1:2023-24 at 7.8%; Q2 at 6.2%; Q3 at 6.1%; and Q4 at 5.9%, with risks evenly balanced,” RBI Governor Shaktikanta Das on Thursday while presenting the first bi-monthly monetary policy statement of FY24.

While the latest growth projections are unchanged for Q1 and Q2 from the estimates made in February, the Q3 and Q4 estimates have been revised upward by 0.1 percentage points each.

Das, however, noted that the drag from net external demand may continue due to increased global headwinds and the protracted geopolitical tensions and global financial market volatility pose downside risks to the outlook.

The upward revision in the growth forecast by the RBI comes just days after the World Bank and the Asian Development Bank lowered their GDP estimates for the fiscal to less than 6.5%. While the World Bank has pegged the economy to grow at 6.3% this fiscal, the ADB expects it to grow by a notch higher at 6.4%. Most agencies expect GDP to grow at a more subdued 6% or so in the current fiscal after 7% growth in FY23.

While noting that the RBI has emphasised the resilience of the economy, Amar Ambani, Head of Institutional Equities, YES Securities said that RBI is “over-optimistic” on growth given that consensus projections call for 6% GDP growth for FY24.

Rating agency Icra chief economist Aditi Nayar said the agency’s growth forecast for the first half of the fiscal are milder than the MPC’s. “We project GDP growth at 6% in FY24, dampened by the external sector concerns and a normalising base,” she said.

Madan Sabnavis, chief economist at the Bank of Baroda noted that along with an increase in its GDP estimate, the RBI has also lowered the inflation projection to 5.2% from 5.3% for the fiscal. “While the numbers may not really be significant, the messaging is subtle that the MPC expects the economy to fare well on both counts this year,” he said, adding that the RBI does believe that both the domestic and external sectors are doing well to warrant such optimism.

Das said the expectation of a record rabi foodgrains production bodes well for the food prices outlook. The impact of recent unseasonal rains and hailstorms, however, needs to be watched. Milk prices could remain firm due to high input costs and seasonal factors. The crude oil prices outlook is subject to high uncertainty. The lagged pass-through of input costs could, however, keep core inflation elevated, he said.

“Taking into account these factors and assuming an annual average crude oil price (Indian basket) of $ 85 per barrel and a normal monsoon, CPI inflation is projected at 5.2% for 2023-24, with Q1 at 5.1%, Q2 at 5.4%, Q3 at 5.4% and Q4 at 5.2%, and risks evenly balanced,” Das said. In February, RBI had projected annual inflation to average 5.3% in FY24 factoring in crude at $95/bbl. The latest forecast indicated the CPI would be 0.1 percentage points higher than the 5% anticipated for Q1, but 0.4 percentage points lower than 5.6% for Q4 projected in February.

“Financial stability concerns appear to have pre-empted a pause as the MPC assesses the impact of its cumulative 250 bps of rate hikes. If inflation does not fall in line with the MPC’s assessment for Q1 FY2024, another hike could be in the offing, especially if the financial stability situation stabilises,” Nayar said.

Rajani Sinha, chief economist, CareEdge noted that while domestic economic activity has largely sustained momentum, the impact of the global slowdown is visible in some segments. “The manufacturing sector’s output has contracted in the previous two quarters, merchandise exports have been weak while non-oil imports have fallen for three months in a row,” she said. CareEdge expects the economy to grow by 6.1% this fiscal on the back of strength in private consumption and a pick-up in private investment.

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High frequency economic indicators aren’t all pointing in the same direction. The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) rose from 55.3 in February to 56.4 in March, a three-month high, signalling the strongest improvement in operating conditions in 2023 so far, and demand resilience. Also, a 22% year-on-year jump was reported in Goods and Services Tax collections in March to Rs 1.61 trillion, which was also the second highest monthly mop-up ever from the indirect tax. The Centre’s direct tax collections, net of refunds, exceeded the revised estimate marginally in 2022-23, which meant an year-on-year growth of 17.6%. However, growth in core infrastructure industries slowed to a three-month low of 6% in February. Though seven of the eight infrastructure industries that are part of the index registered expansion in the month, the rate of growth decelerated sequentially in six of the sectors, barring fertilisers and cement.

While high prices of cereals and milk remain a key driver of retail inflation, “pulses and products” could exert some upward pressure on the consumer price index (CPI) in the coming months, with the spike in prices of tur and chana.