India to see solid domestic demand for the next 2 years, to grow at the rate of 6.5%-7%

Economic growth in most emerging market G20 economies, including India, is expected to remain stable, the Organisation for Economic Co-operation (OECD) noted in its latest report. The Paris-based research body also said that the booming domestic demand growth currently being seen in economies like India and Indonesia will continue.

"Solid domestic demand growth is projected to continue in India and Indonesia over the next two years," said the OECD report. OECD has also upwardly revised India's GDP growth by 10 basis points and has pegged at 6.7% in 2024-25 and by 20 basis points for 2025-26 at 6.8%.

These projections are much in line with that of Chief Economic Advisor (CEA) to the Union government, V Anantha Nageswaran. Last week, Nageswaran highlighted that the Indian economy is expected to grow at a rate of 6.5-7 % in the current financial year on a steady state basis. Per him, this growth rate is commendable, given the current global scenario.

Per CEA, there is no vulnerability in the current account balance of the country, with domestic financial markets and the banking system in good health.

"The macro indicators signal stability. There has been a massive shift in capital expenditure, declining external debt to GDP ratio and lower retail inflation," Nageswaran said. At the same time, India needs to generate productive employment, ensure food security, ease regulatory bottlenecks for the MSMEs and ensure efficient financial resource allocation, since MSME sector is the key to non-farm job creation, and small and medium firms need to graduate into large enterprises to absorb more labour. What was also the need of the hour was also to ensure greater participation of women in the workforce.

Nageswaran also added that while the economy will grow at 6.5% in real terms, but the nominal rate of growth will be far more at 11 %, post taking inflation into account. India's GDP grew by an impressive 8.2 % during the financial year 2023-24, making it the fastest-growing major economy. The country grew by 7.2 % in 2022-23 and 8.7 % in 2021-22. Many global rating agencies and multilateral organizations have also revised India's growth forecasts upwards.

Indonesia, Brazil to also maintain growth momentum

Meanwhile, Indonesia is projected to grow by 5.1 % in 2024 and 5.2 % in 2025. In China, the growth is expected to be supported through the second half of 2024, largely due to an increase in government spending following a recent rise in local government bond issuance.

"Even so, the protracted correction in the real estate sector is anticipated to continue and inadequate social safety nets and soft consumer confidence will remain a drag on private consumption growth, with GDP growth projected to be 4.9 % in 2024 and 4.5 % in 2025," the OECD report read.

Brazil is also anticipated to maintain some of the solid economic momentum observed through the first half of 2024, helped by higher fiscal spending. In September, the country's central bank hiked the interest rate, also known as Selic, by 25 basis points, taking it to 10.75% from the previous 10.5%

While growth has also been relatively robust in many G20 countries including the United States and United Kingdom, aggregate consumer price inflation for these economies is projected to decline markedly, helped by lower commodity prices and easing service price inflation as labour cost pressures moderate.

Headline inflation in the G20 is projected to fall from 6.1 % in 2023, to 5.4 % in 2024 and 3.3 % in 2025.

"Inflation in the emerging-market economies is projected to remain generally higher than in the advanced economies, while also easing gradually," the OECD report added. However, inflation is projected to be back to target in most G20 countries by the end of 2025, OECD said.