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S&P Global Ratings, Monday, revised India’s growth forecast for FY24 upward to 6.4% from 6% projected earlier, bringing it in line with RBI’s estimate of 6.5%.

“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,” S&P noted in its report.

The American rating agency, however, lowered the FY25 growth estimate by 0.5 percentage points to 6.4%. It expects the economy to bounce back to 7% growth in FY26 and FY27.

“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%,” it said.

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%).

Indian economy likely grew better than expected at 6.7% in the second quarter of FY24, according to a median of an ET poll of 10 economists, compared with 6.5% projected by RBI.

The economy recorded a 7.8% growth in the first quarter of FY24 on the back of solid consumption activity and services growth.

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.

S&P, however, pointed out that the headline inflation will remain RBI’s 4% target, delaying the rate cuts.

The rating agency forecasts 5.5% inflation in FY24, declining to 4.5% in FY25. It expects inflation to average 4.7% in FY26 and FY27.

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.

The policy rate was last raised to 6.5% in February.

On a better footing

The rating agency also increased growth estimates for the major Asia-Pacific economies. The growth for the entire region was also revised upwards to 4.7% in 2023 from 4.3% projected earlier.

The pick-up in the Chinese economy spurred a 0.6 percentage point revision by S&P to 5.4% in 2023.

“With the property sector struggling and confidence subdued, the growth outlook remains moderate,” S&P said.

Vietnam’s growth was revised upward to 4.9%; their economy is likely to grow a shade slower than India’s at 6.3% in 2024 and 6.8% for 2025 and 2026, with India retaining the fastest-growing major economy tag for the period.

The agency noted that slower growth in the West and China could pose a risk for the world, including a rise in US inflation and a surge in global commodity prices.

“In Australia, India, and the Philippines, lingering inflation risks are keeping central banks occupied. Government plans to expand fiscal policies in several countries could complicate central banks’ policymaking,” S&P stated.

The ratings agency expects rupee to depreciate to 83.5 against the dollar in FY25 and further to 85 by FY26.

(FY24 growth forecast, %, y-o-y)
S&P Global Ratings
World Bank

  • Published On Nov 28, 2023 at 07:59 AM IST

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