New Delhi: Economists have begun revising India’s growth forecast for FY25 after data released earlier this week showed the economy grew at a better-than-expected pace in the first three quarters of the current fiscal.
A revival in spending by private enterprises and tailwinds from expected monetary easing sometime later in the year are expected to keep the economy chugging at the current world-beating pace. Growth for the full year FY24 is now seen at 7.6%.
“We expect the steady domestic growth momentum to continue, supported by continued increases in government capex, much anticipated rising private investment, and monetary easing,” said Rahul Bajoria, managing director and head of EM Asia (ex-China) Economics, at Barclays.
Barclays has revised its FY25 growth forecast for the Indian economy to 7% from the 6.5% it had projected earlier.
An ET poll conducted before the GDP (gross domestic product) data release had pegged FY25 growth at a median of 6.5%, with forecasts ranging from 5.4% to 7.1%.
The International Monetary Fund (IMF) has said expects the Indian economy to grow at 6.5% in FY25, whereas the World Bank has pegged it at 6.4%.
SBI researchers say growth may even inch closer to 8% in the coming year, given the efficiency of capital is improving.
“Even if investment and savings stay at the same level in FY25, with a declining ICOR (incremental capital output ratio), India could comfortably grow at 8% in FY25,” SBI researchers noted.
ICOR, or additional capital required to achieve additional units of output, declined to 4.4 in FY23 from 7.8 in the pre-pandemic period.
Data released earlier this week showed the economy grew at 8.2% in the first three quarters of the year, lifting the FY24 growth estimate to 7.6% from 7.3% projected in January.
Motilal Oswal Financial Services Ltd has raised its FY25 forecast to 5.5-5.6% from 5.4% pencilled earlier.
Some economists also see consumption, about 60% of GDP, beginning to pull its weight with easing inflation lifting sentiment. According to government data, private final consumption expenditure eased to 3% in FY24, compared with 6.8% in the previous year. Investment is projected to have improved, rising 10.2% this fiscal year from 6.6% in FY23.
“Consumption is expected to benefit from easing inflation and the anticipated reduction in rates, besides better sentiments and real-wage growth,” said Radhika Rao, senior economist at DBS, in a note.
Inflation declined to a three-month low of 5.1% in January compared with 5.7% in the previous month. Economists in the ET poll anticipate inflation to ease further to 4.6% in the coming year.
Economists see a 0.25 percentage point rate cut from the Reserve Bank of India’s monetary policy committee in the June or August meeting. The MPC will likely hold the policy rate at 6.5% for the seventh consecutive time at its meeting next month.
The receding El Nino conditions are also likely to support farm sector growth, which dipped to 0.7% in FY24 compared with 4.7% in the previous year.
