Indian economy may grow at 6.2% next fiscal due to neutral policy settings, positive credit momentum: UBS
This growth is anticipated due to the favourable combination of neutral policy settings, positive credit momentum, and manageable macroeconomic macros amid a 15-year high household debt levels
- Jan 10, 2024,
- Updated Jan 10, 2024 7:57 AM IST
In the next fiscal, the Indian economy is projected to grow at 6.2 per cent. This growth is anticipated due to the favourable combination of neutral policy settings, positive credit momentum, and manageable macroeconomic macros amid a 15-year high household debt levels, according to a foreign brokerage report.
Despite the rising external headwinds, India is likely to grow 6.2 per cent next fiscal against a consensus of 6.3 per cent to USD 3.9 trillion from USD 3.57 trillion in FY24 on a likely 7 per cent growth, as consumption growth is likely to stabilise at 4.7 per cent from 4.5 per cent in FY24, Tanvee Gupta-Jain, the UBS India chief economist, said in a note.
A pick-up in capex is expected to become more broad-based in FY25, led by marginally moderate public capex but higher private corporate capex after elections, Jain said, according to news agency PTI.
Another factor contributing to growth will be the residential housing sector, in conjunction with exports, which may marginally improve, depending on global growth.
Jain said, "We expect India to maintain medium-term growth of 6.5 per cent annually from FY26 through FY30 when it sees the GDP touching USD 6 trillion." She added that the country's potential growth could benefit from digitalisation adoption, increased services exports and a manufacturing push.
However, she flagged the record high level of household debt, which according to the latest RBI data surged to 5.8 per cent of GDP in FY23.
Explaining the sweet spot that the country is in, she said a key factor supporting better economic activity is the sharp pick-up in credit growth, which may clip at 13-14 per cent next fiscal as well (which is also partly driven by higher household leverage explaining a fifth of the past two years private consumption growth).
"We expect bank credit to sustain double-digit growth of 13-14 per cent in FY25 and a virtuous investment cycle could help shift the credit driver from fast-growing consumer loans towards manufacturing/infra sectors," she said, as per the PTI report.
On the forthcoming general elections, the brokerage said recent opinion polls and state election results suggest an increased probability that the BJP will perform well in the upcoming general elections, thus reducing risks of fiscal populism.
"We believe political stability supports policy continuity, leading toward further digitalisation and reforms to boost manufacturing/exports, given the country's increasing footprint in global value chains."
Jain anticipates a moderation in the Consumer Price Index (CPI) from 5.4 per cent in FY24 to 4.8 per cent in FY25. This prediction is based on the expectation of normalising food prices and improved supply conditions. Additionally, Jain believes that it would take a considerably longer time for inflation to reach the target of 4 per cent in this cycle.
(With PTI inputs)
Also Read: India story intact in worst half decade of growth in 30 years, says World Bank
In the next fiscal, the Indian economy is projected to grow at 6.2 per cent. This growth is anticipated due to the favourable combination of neutral policy settings, positive credit momentum, and manageable macroeconomic macros amid a 15-year high household debt levels, according to a foreign brokerage report.
Despite the rising external headwinds, India is likely to grow 6.2 per cent next fiscal against a consensus of 6.3 per cent to USD 3.9 trillion from USD 3.57 trillion in FY24 on a likely 7 per cent growth, as consumption growth is likely to stabilise at 4.7 per cent from 4.5 per cent in FY24, Tanvee Gupta-Jain, the UBS India chief economist, said in a note.
A pick-up in capex is expected to become more broad-based in FY25, led by marginally moderate public capex but higher private corporate capex after elections, Jain said, according to news agency PTI.
Another factor contributing to growth will be the residential housing sector, in conjunction with exports, which may marginally improve, depending on global growth.
Jain said, "We expect India to maintain medium-term growth of 6.5 per cent annually from FY26 through FY30 when it sees the GDP touching USD 6 trillion." She added that the country's potential growth could benefit from digitalisation adoption, increased services exports and a manufacturing push.
However, she flagged the record high level of household debt, which according to the latest RBI data surged to 5.8 per cent of GDP in FY23.
Explaining the sweet spot that the country is in, she said a key factor supporting better economic activity is the sharp pick-up in credit growth, which may clip at 13-14 per cent next fiscal as well (which is also partly driven by higher household leverage explaining a fifth of the past two years private consumption growth).
"We expect bank credit to sustain double-digit growth of 13-14 per cent in FY25 and a virtuous investment cycle could help shift the credit driver from fast-growing consumer loans towards manufacturing/infra sectors," she said, as per the PTI report.
On the forthcoming general elections, the brokerage said recent opinion polls and state election results suggest an increased probability that the BJP will perform well in the upcoming general elections, thus reducing risks of fiscal populism.
"We believe political stability supports policy continuity, leading toward further digitalisation and reforms to boost manufacturing/exports, given the country's increasing footprint in global value chains."
Jain anticipates a moderation in the Consumer Price Index (CPI) from 5.4 per cent in FY24 to 4.8 per cent in FY25. This prediction is based on the expectation of normalising food prices and improved supply conditions. Additionally, Jain believes that it would take a considerably longer time for inflation to reach the target of 4 per cent in this cycle.
(With PTI inputs)
Also Read: India story intact in worst half decade of growth in 30 years, says World Bank