S&P Global Ratings has revised India’s growth projection from 6.4 per cent to 6.8 per cent. After a better-than-expected 7.6% growth in fiscal year 2024 estimated by the National Statistical Office, S&P India pegged real GDP growth to moderate to 6.8% in fiscal year 2025.
Factors contributing to this moderation include restrictive interest rates expected to weigh on demand, regulatory actions aimed at controlling unsecured lending, and a lower fiscal deficit, which is anticipated to dampen growth prospects.
The agency also said consumer inflation is expected to decline further to 4.5% on average in fiscal 2025
While non-food Consumer Price Index (CPI) inflation softened by approximately 250 basis points, food inflation experienced a slight rise of 40 basis points in the first ten months of the current fiscal year.
Despite these 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 due to elevated food inflation.
In largely domestic demand-led economies such as India, Japan, and Australia, higher interest rates and inflation have impacted household spending power, leading to a reduction in sequential GDP growth in the second half of the fiscal year.
This slowdown in sequential growth was observed in India after a period of robust growth in the first half of the year. Similar trends were observed in economies such as Hong Kong, Malaysia, and Thailand.
With slowing inflation, a smaller fiscal deficit, and lower U.S. policy rates, the groundwork is being laid for the Reserve Bank of India to initiate rate cuts.
However, S&P Global Ratings suggests that more clarity on the path of disinflation could delay this decision until at least June 2024, if not later.
The revision in India’s growth projection comes amidst ongoing economic uncertainties both domestically and globally.
While the outlook remains positive, policymakers are closely monitoring various factors to ensure sustainable economic growth and stability in the region.