OECD contributes to India’s growth estimate for FY25 by 40 basis points to 6.6%

Global GDP growth is anticipated to be 3.1% in 2024, hardly altered from 2023, and then 3.2% in 2025, supported by lower policy interest rates and better real income growth.

Business

By Sneha Sengupta On May 2, 2024

The Organization for Economic Co-operation and Development (OECD) increased its growth estimate for India on Thursday, citing strong public investment and increased business confidence as the main drivers of the country’s gross domestic product (GDP) growth. The increase was 40 basis points to 6.6% for FY25.

“Domestic demand will be driven by gross capital formation, particularly in the public sector, with private consumption growth remaining sluggish. Exports will continue to grow, especially of services such as information technology and consulting where India will continue to increase its global market share, supported by foreign investment,” the inter-governmental group of 38 high-income economies said in its latest Economic Outlook.

“Some high-frequency indicators, including on E-way bills, toll collections, and new vehicle and scooter sales, are suggesting increasing activity. Other indicators, such as digital payment transactions and cement output, remain relatively flat,” the outlook noted.

According to the OECD, more has to be done to combat debt by raising taxes, enhancing spending effectiveness, and enforcing stricter fiscal regulations.

“Fiscal consolidation, while necessary, will weigh on public investment and be offset only partially by stronger private investment as business confidence improves. Household consumption (in particular, consumers’ discretionary demand) is not expected to accelerate, amid disappointing job creation, lukewarm rural performance, and still tight financial conditions,” the outlook notes.

The Reserve Bank of India may decrease the policy rate for the first time in late 2024, with cumulative reductions of up to 125 basis points before March 2026, the research stated, provided there are no additional supply shocks that could de-anchor inflatiaon expectations and the monsoon season is normal.

Geopolitical unrest, sticky food prices, and changes in the world financial markets are some of the negative threats India confronts; yet, if disinflation increases consumers’ purchasing power, increases household consumption, and generates jobs, India’s growth might happen more quickly.

GDP OECD