S&P Global Ratings on Monday raised India’s growth forecast for the current financial year to 6.4 per cent, from 6 per cent, saying that robust domestic momentum has offset headwinds from high food inflation and weak exports.
The US-based rating agency, however, has cut growth estimates for the next fiscal (2024-25) to 6.4 per cent, as it expects growth to slow in the second half (October-March) of the current fiscal, on higher base impact and subdued global growth.
“We have revised up our projection for India’s GDP growth for fiscal 2024 (ending in March 2024) to 6.4%, from 6%, as robust domestic momentum seems to have offset headwinds from high food inflation and weak exports. Still, we expect growth to slow in the second half of the fiscal year amid subdued global growth, a higher base, and the lagged impact of rate hikes. As a result, we have lowered our outlook for growth in fiscal 2025 to 6.4%, from 6.9%,” S&P said.
The Indian economy grew 7.2% in 2022-23 fiscal ended March 2023. India’s GDP expanded 7.8% in April-June quarter.
In its Economic Outlook for Asia Pacific, S&P said growth this year and the next is on track to be the strongest in emerging market economies with solid domestic demand India, Indonesia, Malaysia, and the Philippines.
Fixed investment has recovered considerably more than private consumer spending in India, it said. In India, there was a transitory spike in food inflation in the July-September quarter, but it appears to have had little effect on underlying inflation dynamics.
Still, headline inflation remains above the Reserve Bank of India’s target of 4%, suggesting it will be a while before the rate cycle turns, S&P said.
“In Australia, India, and the Philippines, lingering inflation risks are keeping central banks occupied. The government plans to expand fiscal policies in several countries could complicate central banks’ policymaking. In coming months, the spotlight may shine a little more brightly on emerging markets where domestic demand is strong”. S&P further added.
The upward revision by the global rating agency follows a similar revision by the International Monetary Fund, which revised India’s growth forecast for FY24 upward to 6.3% in October from 6.1% projected earlier and brings it on par with World Bank (6.3%) and ADB (6.3%).
Experts noted that despite slowing services growth in the second quarter, robust manufacturing and construction activity likely contributed to growth in Q2. The government will release GDP growth numbers for Q2FY24 on November 30.
On the rate front, S&P projects rates to decline by 1 percentage point to 5.5% by end of FY25. The Reserve Bank of India’s Monetary Policy Committee is likely to hold the policy rate for the fifth consecutive time at its meeting next week.
Why did S&P revise its projections?
The robust domestic growth has offset the inflation winds. The growth experienced from initiatives like Make-In-India and Vocal for Local have finally fructified.
Less dependency on imports from other countries and more input from the country within have offered a new boost to the economy. Not only S&P but many other agencies such as International Monetary Fund (IMF) have also predicted coming years to be India dominant.
MoUs from many MNCs and big companies to invest in India such as Apple and Foxconn have reduced unemployment and increased economic impact.
S&P provide projections for world economies; but who are they?
Standard & Poor’s is an American financial intelligence company that operates as a division of S&P Global. S&P is a market leader in the provision of financial market analysis, particularly in the provision of benchmark and investable indices and credit ratings for companies and countries.
S&P Global provides credit ratings, benchmarks, data, and digital and traditional financial research and analytical tools to capital and commodity markets globally.
