OECD's Indian Economic Outlook

OECD's Indian Economic Outlook

Market Outlook
by Shreya Anaokar Last Updated: 2022-06-09T18:20:28+05:30

The Organization for Economic Cooperation and Development (OECD) recently published its Economic Outlook for India where it pegged India’s FY23 economic growth at 6.9 percent, the lowest by a major bank or institution, saying the country had been adversely affected by Russia’s invasion of Ukraine.

According to the OECD:

- The Indian economy is progressively losing momentum as inflationary expectations remain elevated due to rising global energy and food prices, monetary policy normalizes and global conditions deteriorate. 

- The Real GDP is projected to grow by 6.9% in FY2023 and 6.2% in FY2024, despite a pick-up of corporate investment facilitated by the Production-Linked Incentive (PLI) Scheme. While inflation will gradually decline, the current account deficit will widen due to the surge in energy import costs. 

- RBI began monetary policy tightening in May, intending to anchor inflation expectations and limit second-round effects. Given the financial and social costs of high inflation, the RBI should gradually move towards a more neutral monetary stance. 

- The policy rate is projected to rise to 5.3% by the end of 2022 and remain there in 2023.

- With food and energy accounting for 53% of the consumer price index basket, measures have also been taken to contain domestically-generated inflation, such as cutting central excise duties on petrol and diesel and import duties on edible oils and coal, as well as restricting exports of selected agricultural produces. 

- The central government fiscal deficit will decline, despite an increase in Capex, in the expectation that private investment will be crowded in.

- Railways and roads will receive a considerable boost through 50-year interest-free loans.

- Monetary policy normalization and weaker external demand will weigh on GDP growth in FY 2022-23 and FY 2023-24, though strong government spending will continue to support activity.

- Households maintain cautious views regarding short and medium-term prospects, amid signs of labor market softening, deteriorating purchasing power, and flattening real incomes. 

 - Merchandise exports rose to a record level, exceeding official government targets and validating India’s strategy of managed liberalization through preferential trade agreements with major partners. 

- Consumption growth has slowed, with sales of two-wheelers falling to a 10-year minimum, subdued private sector credit growth, and contracting employment, although companies report difficulties in filling vacancies.

- Consumer price inflation for energy-related items and edible oils started trending up even before the Ukraine war and accelerated later. 

- Based on India’s current policy settings, nearly 60% of its CO2 emissions in the late 2030s will be coming from infrastructure and machines that do not exist today which represents a huge opportunity for policies to steer India onto a more secure and sustainable energy path and requires efforts to electrify processes, enhance material and energy efficiency, use carbon capture technologies, and switch to lower-carbon fuels. 

 

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About the Author

Shreya Anaokar is a Content Writer at 5paisa. She has completed her Master’s in Finance and Graduation in Statistics from the University of Mumbai. 

Disclaimer

Investment/Trading is subject to market risk, past performance doesn’t guarantee future performance. The risk of trading/investment loss in securities markets can be substantial. Also, the above report is compiled from data available on public platforms.

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