The week in charts: Corporate profit, job reservation, rural housing

India needs to achieve a growth rate of 8% to become a developed economy by 2047, according to the World Bank's India country director. The bank has kept its growth forecast for India at 6.3% for FY24, which is still one of the highest growth rates among major economies. Despite concerns about high inflation and interest rates, the Indian economy has shown resilience to global headwinds.

The report, authored by Surjit Bhalla and Karan Bhasin, states that this has been a result of the government's strong policy thrust on redistribution, which has led to strong inclusive growth in India over the last decade.

It has been a lost decade for two-wheelers in India with a sales CAGR of a little over 1%. Can this year be a turning point? The recent signs of recovery cannot change the fact that the past decade has been a lost one for the two-wheeler segment. The sales inched up from 13.79 million units in FY13 to 15.86 million units in FY23 — a CAGR of 1.4%, the lowest among all vehicle segments.

India's central bank is expected to cut its key policy rate by 0.25% in December to support slowing economic growth. A Reuters poll shows a slim majority of economists predicting the rate cut. Inflation is expected to moderate, providing the Reserve Bank of India room for policy easing. Growth rates are also predicted to slightly decline.

Despite upbeat forecasts for FY24, looming risks could make FY25 more challenging

The recent drop in India's Consumer Price Index (CPI) indicates that the monetary policy is on the right path, according to Reserve Bank of India Governor Shaktikanta Das. The CPI inflation rate reached an 18-month low of 4.7% in April, down from 5.7% in the previous month. The central bank has raised the repo rate by 250 basis points since May 2022 to meet the 4% CPI target.

The World Bank has kept India's growth forecast unchanged at 6.3% for FY24, citing investment as a significant driver. However, it has revised its inflation projection to 5.9% from 5.2%. It also notes that inflation is likely to spike more than expected due to abnormal rainfall and the concern over oil prices.

In India, CPI inflation was projected at 4.5% for the financial year 2024-25, a good 90 basis points lower than the estimated average for 2023-24. But, the large and repetitive food price shocks remained a concern, with geopolitical events and their impact on supply chains, and volatility in international financial markets and commodity prices posing upside risks.

Inflation is already moderating and the external account is sound, the Reserve Bank of India (RBI) said, but the El Nino and its adverse impact on rainfall remain potential threats to macroeconomic stability and food prices. Furthermore, moderating global growth, protracted geopolitical tensions and a possible upsurge in financial market volatility, evident in the implosion of many regional US banks, pose downside risks.

India's central bank is likely to retain interest rates at 6.50%, emphasizing the balance between growth and stability. With strong economic growth and lower inflation, the bank aims to maintain policy until inflation aligns with the 4% target.