- Tuesday, February 25, 2025
By: Shubham Ghosh
INDIA’S economic recovery from pandemic-induced shutdowns could witness a further delay in the remaining six months of the current fiscal, economists have warned in a poll conducted by Reuters. The experts expect elevated inflation to hold or accelerate, not plummet.
While price pressures in the Asian economy have gone up, thanks to soaring fuel prices, the country’s central bank – the Reserve Bank of India (RBI) – is not expected to raise the interest rates until at least the beginning of the next financial year, around April-June 2022.
The RBI is slightly trailing its peers in many of the emerging markets that are already raising the rates, thanks to the lingering concerns about risks to growth, Reuters added.
“While extremely accommodative monetary policy has prevented the economy from falling off a cliff, a continuation of this policy in the absence of appropriate fiscal support will barely move the needle in terms of the pace of recovery of lost growth potential,” Kunal Kundu at Societe Generale, a French multinational investment bank and financial services company based in Paris.
In the poll which was conducted between September 27 and October 4, year-on-year economic growth in Asia’s third-largest economy was forecast at 7.86 per cent, six per cent and 5.8 per cent for Q3, Q4 and Q1 2022, respectively.
Earlier, a poll in July offered higher forecasts for Q3 and Q1 2022.
Gross domestic product (GDP) growth is forecast to average 9.2 per cent this fiscal year.
In the next financial year, growth is seen at 9.7 per cent and 7.1 per cent for the first two quarters and at 6.5 per cent and 6.4 per cent for the final two quarters, averaging seven per cent during 2022-23.
When asked about a greater risk to the numbers for the remainder of the current fiscal year, 23 or 34 of the respondents pointed out a delayed recovery with limited downside. Eight said a strong recovery followed by an upgrade while the remaining three said weak and prone to further downgrades.
“But with inflation expected to remain elevated … persisting with ultra-accommodative monetary policy when the economy is in a recovery phase could lead to stagflation, impacting the recovery itself,” Kundu said.
The RBI has said policy support from all sides is required to see a nascent and hesitant recovery.
“It will be a long while yet before financial conditions start to tighten in earnest, and even longer before policy rates are raised. Rate hikes will come onto the agenda when the economy should be closer to health,” Shilan Shah at the UK’s Capital Economics told Reuters.
