S&P Global raises India’s FY25 GDP growth forecast by 40 bps to 6.8%
Upstox
3 min read • Updated: March 26, 2024, 2:31 PM
Summary
The ratings agency has projected the Indian economy to grow by 6.8% in the financial year 2024-25, higher than its previous forecast of 6.4%. S&P also sees rate cuts in the second half of calendar year 2024, saying that the RBI is likely to slash the key lending rates by 75 basis points.
S&P Global has revised its projection for India’s gross domestic product (GDP) growth in fiscal year 2024-25 by 40 basis points (bps) or 0.4%. The New York-based ratings agency, in a report released on Tuesday, March 26, said the Indian economy is poised to grow by 6.8% in FY25.
In its previous forecast, S&P Global saw the Indian economy growing by 6.4% in the next fiscal. Although the latest forecast is higher by 40 bps, it is still lower than the Reserve Bank of India’s (RBI) projection of 7% GDP growth in FY25.
The ratings agency further sees India growing at 5% each in FY26 and FY27 – the same as it projected in its previous forecast.
S&P Global has also retained its FY24 growth forecast for India at 7.6%. This is the same rate at which the RBI sees the Indian economy to be growing in the current fiscal.
Rate cuts in sight
The RBI is likely to slash the benchmark interest rates by 75 bps or three-fourth of a percentage point in calendar year 2024, S&P Global said. At present, the repo rate or the rate at which the central bank lends to commercial lenders is 6.5% – unchanged since April last year.
"In India, slowing inflation, a smaller fiscal deficit and lower US 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," the agency said, in a report titled ‘Economic Outlook Asia-Pacific Q2 2024: APAC Bides Its Time On Monetary Policy Easing’.
The impact of high interest rates, combined with inflation, has adversely affected the growth prospects in domestic demand-led economies such as Australia, Japan and India, S&P said. The pinch was felt in the second half of FY24, the report suggested.
In India, the retail inflation rate stood at 5.09% in February 2024, which is higher as compared to the RBI’s medium-term target of 4%.
Meanwhile, the S&P report noted that the GDP growth in neighbouring China is likely to decelerate. The agency projects a growth of 4.6% in FY25, lower as compared to 5.2% in FY24.
"Our forecast factors in continued property weakness and modest macro policy support. Deflation remains a risk if consumption stays weak and the government responds by further stimulating manufacturing investment,” it said.