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Business News/ Economy / Govt spending sparks India’s economy despite inflation, geopolitical crises: Icra

Govt spending sparks India’s economy despite inflation, geopolitical crises: Icra

Icra expects India’s GDP to expand at 6.5% in FY25, after growing at 7.6% in the just-concluded financial year

Icra joins a number of rating agencies predicting robust growth for India’s economy. (Bloomberg)Premium
Icra joins a number of rating agencies predicting robust growth for India’s economy. (Bloomberg)

NEW DELHI : Rating agency Icra Ltd credited the Indian government’s spending on infrastructure, apart from promising macroeconomic conditions and relatively stable commodity prices, for the country’s robust economic growth amid a sea of challenges.

Icra joined the bandwagon of rating agencies predicting robust growth for India’s economy, which it said faced multiple challenges including inflation, rise in borrowing costs, sub-par monsoons, sluggish exports, the Red Sea crisis, and the effects of the Russia-Ukraine and Israel-Palestine conflicts.

The agency on Monday forecast India’s GDP growth at 7.6% for FY24, and at 6.5% for the just-begun FY25.

India’s economy soared ahead in the December quarter (the third quarter of FY24) with a surprise growth of 8.4%, belying fears of tempering as the manufacturing, electricity and construction sectors put up a robust show.

Following this, the statistics ministry raised India's GDP growth estimate for FY24 to 7.6% in its second revised estimate, up from 7.3% in its first advance forecast.

The Reserve Bank of India’s GDP growth estimate for FY24 is 7%, while the International Monetary Fund’s forecast is 6.7%. 

Also read: Indian economy keeps its shine, with some red flags

Meanwhile, the average Consumer Price Index-based retail inflation is estimated to moderate to 4.6% in FY25, against 5.3% in FY24, though wholesale inflation may move back to a low 2-4% in FY25, up from -0.7% in FY24, Icra said. 

In the fiscal year ended 31 March (FY24), Icra upgraded two entities for every entity it downgraded, continuing an upgrade momentum that had been set in motion in FY22.

"A large majority of rating upgrades were driven by company-specific factors such as expansion in market share or order book, improvement in the cost structure, reduction in project risk, or fresh equity infusion that strengthened the balance sheet," said K. Ravichandran, chief rating officer at Icra. “Aviation, hospitality, auto and auto components, and banks were the only sectors in FY2024 where the rating upgrades were induced mostly by industry tailwinds."

Icra said it maintained a positive outlook on sectors such as hospitality for FY25, while warning that sectors like chemicals, cut and polished diamonds, and bulk tea may see headwinds in the near term. 

Meanwhile, as credit profiles continued to improve in FY24, instances of defaults dropped to five from 22 in the previous financial year and 42 in FY22, the rating agency said. 

The severity of rating actions, as measured by the Large Rating Change Rate, also reduced to 0.7% in FY24 from 1.4% in FY23 and 2.3% in FY22, it added. 

“Corporate India has shown a high resilience to withstand the rise in borrowing costs over the past two years and is seen to have the capacity to bear the current level of interest rates before the rate cut cycle likely begins in the latter part of the year," Ravichandran said. 

"The key downside factors that could throw a spanner in the works to this radiant prognosis would be how the monsoons pan out this year and how the complicated geopolitical landscape evolves", he added.

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Rhik Kundu
Rhik writes about the Indian economy and its crucial indicators. He is constantly navigating corporates, decoding policies, and dabbling with everything in between.
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Published: 01 Apr 2024, 04:56 PM IST
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