Fitch raises India GDP growth estimate for FY24 to 7.8%
It noted that economic growth had continued to outperform its quarterly forecasts, with a much stronger increase in real GDP than expected in the December outlook report.
Ratings agency Fitch raised India’s GDP growth estimates for FY24 and FY25 on Thursday, as compared with its previous outlook, citing growing domestic demand and improved business and consumer confidence.
Terming the upward revisions “sizeable”, the ratings agency changed the FY24 estimate to 7.8% from 6.9% in December 2023, and the FY25 estimate to 7%, from 6.5% a quarter ago. It also lowered its expectations of future rate cuts.
"With GDP growth having exceeded 8% for three consecutive quarters, we expect an easing in growth momentum in the final quarter of the current fiscal year, implying an estimate of 7.8% for growth in FY24," Fitch said.
It noted that economic growth had continued to outperform its quarterly forecasts, with a much stronger increase in real GDP than expected in the December outlook report. The outlook was driven by domestic demand, a 10.6% investment growth on-year and a 3.5% increase in private consumption.
The agency also pointed to GDP rising far faster than the gross value-added (GVA) -- indirect taxes net of subsidies being the difference between the two measures – calling the gap “unusually wide” but one that may normalize. Strong business survey data for January and February represent an upside risk to these estimates, it added.
"Our forecasts imply that growth in the short term will outpace the economy's estimated potential, and that the pace of growth of activity will then moderate towards trend in FY25,” it added.
The revision of forecast by Fitch follows similar revisions other global ratings agencies including S&P and Moody’s following blockbuster GDP growth in the third quarter of FY24. India has reported 8.4% GDP growth in October-December quarter, the fastest in 18 months, on the back of good performance by manufacturing and construction sectors while retaining the tag of being the fastest growing economy globally.
The agency’s projections for FY24 are above the government’s revised estimates of 7.6% but lower than Reserve Bank of India chief Shaktikanta Das’ estimate of close to 8%.
The rating agency also expects the RBI to go for a 50 bps rate cut from July to September, lowering its estimate from 75 bps in December, due to the stronger growth outlook.
“Core inflation measures are steadily declining, underlining that developments in food prices (which account for around half of India’s consumer price index) will be key to inflation developments and the pace at which inflation will approach the Reserve Bank of India’s (RBI) 4% mid-point of its 2%- 6% target band,” it added.
Fitch expects the headline retail inflation number to fall to 4% by the end of December 2024, on the assumption that food prices will cool. In February, retail inflation in India remained unchanged at 5.1%, while core inflation measures continued to decline steadily.
The RBI has kept the repo rate unchanged at 6.5% for the last six consecutive meetings and has reiterated its commitment to reaching the 4% inflation target on a sustainable basis.
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First Published:14 Mar 2024, 11:30 AM IST
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