S&P ups India FY25 growth forecast to 6.8%, sees 'solid domestic demand growth'

Indian economy will grow 6.8 per cent in Fiscal Year 2024-2025, S&P Global Ratings said Tuesday, raising its growth forecast for India’s gross domestic product (GDP) by 40 basis points.

In November 2023, the US-based rating agency had projected India’s growth to be 6.4 per cent in 2024-25 fiscal.

The raising of India’s FY25 GDP growth forecast by S&P is, however, lower than the 7.6 per cent for the current fiscal.

“We expect India’s real GDP growth to moderate to 6.8 per cent in fiscal year 2025 (ending March 2025),” S&P said.

The agency has not made any change in its forecast for Fiscal Years 2025-26, 2026-27 and 2027-28 and pegged at 6.9 per cent, 7 per cent, 7 per cent, respectively.

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Projection lower than RBI and GoI estimates

Despite the hike, S&P’s latest projection is lower than Reserve Bank of India’s (RBI) estimate of 7 per cent. Also, the Indian government expects GDP to grow around 7 per cent during the next fiscal year.

Meanwhile, other domestic and global agencies expect growth to be in the range of 6.5 to 7 per cent.

Factors for increase in India’s GDP

In its Economic Outlook for the Asia Pacific, S&P said: “For Asian emerging market (EM) economies, we generally see solid domestic demand growth and a pick-up in exports to drive robust growth, with India, Indonesia, the Philippines and Vietnam in the lead.”

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But all won’t be smooth

The rating agency has flagged restrictive interest rates as a dampener for economic growth.

“In largely domestic demand-led economies such as India, Japan, and Australia, the impact of higher interest rates and inflation on household spending power reduced sequential GDP growth in the second half,” S&P said.

“Restrictive interest rates are likely to weigh on demand next fiscal year, while regulatory actions to tame unsecured lending will affect credit growth. A lower fiscal deficit will also dampen growth,” it added.

The agency went on to say that high real policy rates will choke demand and are therefore likely to strengthen the case for lowering rates.

For this fiscal, S&P said it forecast rate cuts of up to 75 basis points. “In line with our projection for US policy rates, we largely expect these moves to occur in the second half of the year,” it added.

S&P also said In India, slowing inflation, a smaller fiscal deficit and lower US policy rates will lay the ground for the RBI 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,” it said.

India grows, China slows

For China, S&P Global said it sees the country’s GDP growth slowing to 4.6 per cent in 2024 from 5.2 per cent in 2023.

“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.

With inputs from PTI