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According to a recent Reuters poll of economists, India's festival season is expected to provide a modest boost to consumer spending, although it may not be sufficient to significantly accelerate the growth of the country's already rapidly expanding economy. Despite a slight dip in inflation, the data suggests that the Reserve Bank of India is unlikely to cut interest rates in the near future.
Since the onset of the pandemic, consumer spending, which accounts for approximately 60% of India's economy, has been slow to recover to pre-COVID levels. Although the current quarter is anticipated to witness increased consumer spending due to the festival season spanning from October to December, the overall economic growth outlook for the year remains largely unchanged.
The survey revealed that nearly 75% of the economists, out of a total of 33, believed that spending during this year's festival season would be higher compared to the previous year. Among these, 21 expected a slight increase, while four predicted a significant rise. Eight economists anticipated a slight decrease in spending.
The median forecast from a broader sample of 63 economists in the survey conducted from October 16 to 25 indicated that India's GDP growth would average 6.3% in the current fiscal year and the next. This figure closely aligns with the median forecast from a previous poll in September, which predicted growth rates of 6.2% and 6.3% for the respective years.
While there is optimism regarding festive demand, economists generally agree that India needs even higher growth rates to create sufficient job opportunities for its growing youth population. The Reserve Bank of India stated earlier this year that India would need to achieve annual growth of 7.6% for the next 25 years to become a developed nation, a rate that no economist in the poll believes will be achieved this year or the next.
The survey also showed that inflation is expected to average 5.5% in the current year and 4.8% in 2024, slightly above the midpoint of the RBI's target range of 2-6%. The poll suggested that the RBI would likely maintain its repo rate at 6.50% until at least the end of June next year, with the first 25 basis point rate cut anticipated in the July-September quarter.
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