S&P Global Ratings has adjusted its forecast for India’s growth, revising it upward from 6.4 per cent to 6.8 per cent. Despite the National Statistical Office’s projection of a robust 7.6% growth in fiscal year 2024, S&P India anticipates a moderation in real GDP growth to 6.8% in fiscal year 2025.
Several factors contribute to this moderation, including expectations of restrictive interest rates impacting demand, regulatory measures targeting unsecured lending, and a lower fiscal deficit, all of which are anticipated to dampen growth prospects.
The agency also predicts a further decline in consumer inflation to an average of 4.5% in fiscal 2025. While non-food Consumer Price Index (CPI) inflation has softened by approximately 250 basis points, food inflation has experienced a slight increase of 40 basis points in the first ten months of the current fiscal year.
Despite fluctuations, headline inflation is estimated to have decreased to 5.5 per cent this fiscal year from 6.7 per cent in fiscal 2023, primarily driven by elevated food inflation.
In economies driven largely by domestic demand such as India, Japan, and Australia, higher interest rates and inflation have impacted household spending power, resulting in a reduction in sequential GDP growth in the second half of the fiscal year.
This slowdown in sequential growth was particularly evident in India following a period of strong growth in the first half of the year, mirroring trends observed in economies like Hong Kong, Malaysia, and Thailand.
With inflation slowing, a reduced fiscal deficit, and lower U.S. policy rates, conditions are being set for the Reserve Bank of India to consider rate cuts. However, S&P Global Ratings suggests that uncertainty regarding the disinflation path could postpone this decision until at least June 2024, if not later.
This revision in India’s growth projection occurs against the backdrop of ongoing economic uncertainties both domestically and globally. While the outlook remains positive, policymakers are vigilantly monitoring various factors to ensure sustainable economic growth and stability in the region.
