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  1. Fitch raises India’s FY25 GDP growth forecast to 7% from 6.5%

Fitch raises India’s FY25 GDP growth forecast to 7% from 6.5%

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3 min read • Updated: March 14, 2024, 12:46 PM

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The global ratings agency sees India clocking a 7.8% growth in FY24, and projects inflation to cool down to around 4% by 2024-end.

The growth projection has been raised for emerging markets excluding China.

Fitch Ratings on Thursday, March 14, raised India’s gross domestic product (GDP) growth forecast for fiscal year 2024-25 to 7%, as compared to a growth rate of 6.5% pegged earlier.

The upward revision was made by the global ratings agency in its March 2024 Outlook report. Fitch said that the Indian economy is likely to continue with its “strong expansion” in the next fiscal year.

The prospects for emerging markets, excluding China, have also brightened, particularly in India, “where we now expect growth to reach 7.8% in the fiscal year ending March 2024 (FY24) and 7% in FY25,” the report said.

“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,” it added.

According to Fitch, its forecasts suggest that growth in India will “outpace the economy’s estimated potential” in the short-term. The pace of growth will moderate in FY25, with real GDP seen to be “rising by 6.5%,” it said.

Rate cuts likely in second half of 2024

Fitch expects the Reserve Bank of India (RBI) to start slashing the repo rate – the interest rate at which the central bank lends to commercial lenders – in the second half of calendar year 2024.

The RBI is expected to slash the benchmark rate by 50 basis points (bps) between July and December, the agency said in its report. Currently, the repo rate stands at 6.5%, with the RBI leaving it unchanged for the sixth consecutive time during its policy review meeting held last month.

Fitch also sees retail inflation in India cooling down to 4% by the end of 2024. Notably, 4% is the medium-term inflation rate target of the central bank.

Global GDP growth forecast

In its March outlook report, Fitch raised the 2024 global GDP growth forecast by 0.3 bps to 2.4%, as near-term world growth prospects have improved.

The upward revision was factored by a stronger prospect of the US economy, with Fitch seeing it as growing at 2.1% as compared to 1.2% in its previous forecast. The agency has marginally cut the forecast for China – to 4.5% from 4.6% – and made a minor revision to the Eurozone forecast, to 0.6% from 0.7%.

Growth in emerging markets, excluding China, has been revised up by 0.1 bps to 3.2%, with forecasts raised for India, Russia and Brazil, it said.

For 2025, the global GDP growth rate forecast has been left unchanged at 2.5%, Fitch noted.