India's GDP Growth Projected at 6.8% - OECD

January 10, 2025 — India's economic outlook for the coming years is largely positive, with projected GDP growth of 6.8% in fiscal year (FY) 2024-25 and similar rates expected through FY 2026-27, OECD Economic Outlook report states. This robust performance is primarily driven by strong investment, particularly through accelerating public infrastructure spending and vigorous credit growth supporting private investment.

A key factor contributing to this growth is the recovery of farm output. An above-normal monsoon season is boosting rural incomes, which is expected to ease food prices and subsequently lower inflation, the report states. While export growth is projected to increase slightly, potential weaknesses due to ongoing global tensions remain a concern. The anticipated easing of inflation will create opportunities for monetary policy adjustments. Fiscal policy is being managed prudently, with the general government deficit and debt showing a downward trend despite increased public investment.

While economic growth has moderated slightly from the previous fiscal year's 8.2% growth, economic activity remains strong. This is attributed to rising rural demand and incomes, accommodative macroeconomic policies, and ample credit availability. Private consumption growth has increased, although consumer confidence has plateaued, with expectations of future improvement. Public consumption, after a weak start to the year, shows signs of rebounding. The business sector is experiencing robust growth, with profits reaching a 15-year high relative to GDP, improved capacity utilization, and rising investment intentions.

The labor market is currently strong, recovering from a temporary increase in joblessness earlier in the year. Unemployment has returned to 6.4% in the July-September quarter. Inflation, which had eased to below 4% during the summer, has recently risen above 6% due to a resurgence in food prices, particularly vegetables. However, favorable sowing conditions and a heavier-than-normal monsoon are expected to alleviate these food price pressures, bringing inflation back closer to the Reserve Bank’s 4% target.

Foreign trade’s contribution to demand has decreased compared to FY 2023-24. Weakness in non-oil goods exports has been largely offset by falling oil import values. Combined with strong services exports and remittance receipts, this has resulted in a smaller current account deficit of less than 1% of GDP.

Looking ahead, a key challenge for sustaining rapid GDP growth is labor supply. Facilitating structural shifts away from agricultural employment, through improvements in education, is crucial. Additionally, greater focus is needed on addressing informality in the labor market, boosting youth employment, and increasing female labor force participation. These measures are essential for ensuring continued and inclusive economic growth in India.

Source: OECD (2024), OECD Economic Outlook, Volume 2024 Issue 2, OECD Publishing, Paris, https://doi.org/10.1787/d8814e8b-en.

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