Labourers load vegetables on a bicycle at a fruit and vegetable wholesale market in Mumbai
Labourers load vegetables on a bicycle at a fruit and vegetable wholesale market in Mumbai, India, February 8, 2023. Reuters

India's economy will slow considerably this fiscal year as the global economic slowdown impedes domestic growth prospects, according to a Reuters poll, which showed inflation will remain elevated despite recent interest rate hikes.

While the expected expansion would be faster than other major economies, it will be below the long-term average.

Growth in Asia's third-largest economy was expected to slow to 6.0% in the fiscal year to end-March 2024, unchanged from a March survey, after likely growing 6.9% last fiscal year, according to an April 10-19 Reuters poll of 45 economists.

The Reserve Bank of India's projection was 6.5% for this fiscal year. The range of forecasts in the poll had widened from last month.

All respondents in the latest poll predicted a notable deceleration in economic growth this fiscal year, with the most optimistic forecast 6.6% and the weakest 4.4%.

"With the pent-up demand induced technical rebound over, following the deep pandemic-led contraction, India's real GDP is expected to slow down FY24," said Kunal Kundu, India economist at Societe Generale.

"We believe domestic demand will barely support economic activity but not drive growth. We expect public capex-led infrastructure investment to be the major growth driver, while private business capex would still likely remain quite subdued."

Rate hikes from the RBI since last May are also likely to have an impact on growth this year. The central bank has increased rates by 250 basis points and is now expected to remain on an extended pause at least until year-end.

This is despite inflation remaining well above the RBI's 4.0% medium-term target.

The poll median showed inflation at 5.3% this fiscal year, slightly higher than the central bank's projection of 5.2%, and at 5.0% next.

Almost all respondents who answered an additional question, 18 of 19, said the risks to their inflation forecast this year was that it would be higher than they currently expected.

"We suspect that oil prices are likely to average higher than the RBI's forecast ($85 per barrel) and could put some upward pressure on inflation," noted Sakshi Gupta, principal economist at HDFC Bank.

(For other stories from the Reuters global long-term economic outlook polls package)