S&P Global raises India’s FY25 GDP growth forecast to 6.8%

  • The rating agency, which last November projected India's FY25 GDP growth at 6.4%, expects it to moderate in the coming fiscal year after better-than-expected 7.6% growth in FY24.

Rhik Kundu
First Published26 Mar 2024
The Indian economy surged ahead in the December quarter, clocking higher-than-expected growth of 8.4%, belying fears of tempering as manufacturing, electricity and construction put up a robust show. Photo: Mint
The Indian economy surged ahead in the December quarter, clocking higher-than-expected growth of 8.4%, belying fears of tempering as manufacturing, electricity and construction put up a robust show. Photo: Mint

New Delhi: S&P Global on Tuesday raised India’s FY25 growth forecast to 6.8% on the back of strong domestic demand and a pick-up in exports. The American rating agency, which last November projected India's FY25 GDP growth at 6.4%, expects it to moderate in the coming fiscal year after better-than-expected 7.6% growth in FY24.

"For Asian emerging market (EM) economies, we generally project robust growth, with India, Indonesia, the Philippines and Vietnam in the lead," it said in its Economic Outlook Asia-Pacific report. "Restrictive interest rates are likely to weigh on demand next fiscal year while regulatory actions to tame unsecured lending will affect credit growth. A lower fiscal deficit will also dampen growth," it added.

As things stand, India remains the world’s fastest-growing major economy. In December the Reserve Bank of India (RBI) revised its growth forecast for the economy in FY24 to 7%, up from its previous projection of 6.5%. The revision was due to higher-than-anticipated growth in the first two quarters of the financial year.

Interestingly, the government has proposed fiscal-deficit targets of 5.1% of GDP for FY25 and 4.5% or lower by FY26, continuing on its path of fiscal consolidation as it looks to reduce the deficit to around 3% of GDP over the next few years.

Meanwhile, rating agency Moody's raised its forecast for India's GDP growth in FY24 from 6.6% to 8% on the back of strong government expenditure and domestic consumption.

The Indian economy surged ahead in the December quarter, clocking higher-than-expected growth of 8.4%, belying fears of tempering as manufacturing, electricity and construction put up a robust show.

Growth in the third quarter (Q3 FY24) reported by the statistics ministry was also higher than the 7.6% reported for the second quarter, which was revised to 8.1% while Q1 GDP growth figures were updated to 8.2%.

The high growth number has also led to a revision in the National Statistical Office’s estimate for GDP growth in FY24, from 7.3% in its first advance forecast to 7.6% in its recent revised estimate.

Meanwhile, S&P Global expects consumer inflation to decline further to 4.5% on average in FY25, though it expects the RBI to lower repo rates, as high repo rates could choke demand. The repo rate is the interest rate at which the RBI lends to commercial banks. A higher repo rate makes debt and debt-servicing more expensive, thus slowing economic activity.

"We forecast rate cuts of up to 75 bps (India, Indonesia, New Zealand, and the Philippines) this year (India’s fiscal year), with a median reduction of 50 bps," the rating agency said.

"In India, slowing inflation, a smaller fiscal deficit and lower U.S. policy rates will lay the ground for the Reserve Bank of India to start cutting rates. But we believe more clarity on the path of disinflation could push this decision at least to June 2024, if not later," it added.

India's retail inflation eased marginally to 5.09% in February from 5.10% in the previous month, thanks to a deceleration of prices in all categories except food. According to SBI Research, India's retail inflation, as measured by the consumer price index (CPI), is projected to remain slightly above 5% until May before declining to 3% in July.

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