India's Growth Could Slow Next Year, Here's Why?

India's growth could slow next year as rising interest costs have an adverse impact on consumer demand. Interest rates on Loans have becomes more expensive, ever since the Reserve Bank of India raised interest rates or repo rates from 4% to 5.9%.

What Goldman Sachs and Moody's estimates on India's GDP?

Moody's lowered growth forecast for 2023 to 4.8% from 5.2% estimated earlier. Following the deceleration, the agency expects India's economic growth to recover to 6.4% in 2024. The ratings agency, however, said that India's underlying growth dynamics are fundamentally strong, boosted by a rebound in services activity.

Goldman Sachs has pegged India's economic growth at 5.9% for next year. It also estimated 6.9% growth for India in 2022, as the boost from the post-COVID reopening fades and monetary tightening weighs on domestic demand.

Interest rates to be tightened even further

One of the culprits of lower growth is inflation. As inflation has risen sharply across the globe, so has interest rates. Rising interest rates impact consumer demand, including loans of every form, from housing loans to auto loans to gold loans. It is unlikely that interest rates would fall any time soon. In fact, if anything they are likely to rise even further. There is a possibility that the Reserve Bank of India would hike interest rates by another 50 basis points in the upcoming policy in the month of December. It it does so, repo rates would be hiked to 6.40% from just 4% months ago, making borrowing costs even higher.

Global slowdown could push growth slower

India's growth could also be impacted by a sharp slowdown in global growth. Exports and IT related growth slow down could have some impact. Already, we are seeing lay-offs in the tech industry globally, which has led to some lay-offs in India as well. As borrowings become more expensive, its tell-tale impact would continue to be on industry and the economy. It's interesting to see what the US fed does in the coming months with regards to interest rates. Should the US fed turn more aggressive going forward, we could see its impact on the global economy, including India.