The Organisation for Economic Co-operation and Development (OECD) has revised its growth forecast for India in fiscal 2025 to 6.2%, a marginal increase from the previous estimate of 6.1% in November.
Strong investment growth is expected to drive economic expansion in the country over the next two years, OECD said in its interim report, titled ‘Strenghtening the Foundations of Growth’.
“The emerging-market economies have generally continued to grow at a solid pace, despite tighter financial conditions, reflecting the benefits of improved macroeconomic policy frameworks, strong investment in infrastructure in many countries, including India, and steady employment gains,” OECD said in the report.
Business surveys point to stronger activity developments in services than in manufacturing, with industrial production stagnating outside of China in recent months, and divergent cross-country developments, the report said.
“Across countries, there continues to be clear signs of strong near-term momentum in India, relative weakness in Europe, and mild near-term growth in most other major economies,” it added.
The Indian finance ministry sees the economy expanding at 7% in FY25, marking the fourth consecutive post-pandemic year with growth at or exceeding 7%.
Meanwhile, on inflation, OECD said price rise in emerging-market economies will remain generally higher than in advanced economies while easing gradually through 2024-25.
“Tighter monetary policy and energy and food price cycles have also been the key drivers of inflation in many of these economies. In Brazil, India, Indonesia, Mexico and South Africa, inflation is projected to continue easing and converge on or towards central bank targets by the end of 2025,” the Paris-based OECD said.
Easier global financial conditions and the anticipated onset of policy rate reductions in the advanced economies enhance monetary policy space in emerging-market economies by providing more flexibility to implement policy rate reductions, OECD said.
In countries such as India, Indonesia, Mexico and South Africa, policy easing has yet to get underway, with inflation remaining contained but yet to decline substantially. There is scope for some gradual policy easing over the next two years in most of these economies provided disinflation continues, OECD said.
“The pace of policy rate reductions should remain cautious to ensure that inflation expectations remain well anchored and avoid a rapid narrowing of interest rate differentials with advanced economies that could increase the risk of capital outflows or currency depreciation,” it said.
The OECD projected global GDP growth to further slow down to 2.9% in 2024 from 3.1% last year. A recovery to 3% growth is likely in 2025 as financial conditions ease, OECD added.
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