S&P raises India’s GDP growth forecast to 6.4%

We have revised up our projection for India’s GDP growth for fiscal 2024 (ending in March 2024) to 6.4 per cent as robust domestic momentum seems to have offset headwinds from high food inflation and weak exports - S&P

What’s On Horizon?

• S&P’s forecast is higher than global agencies
• IMF, World Bank, ADB and Fitch expect GDP growth at 6.3% for FY24
• RBI projected GDP growth at 6.5% for current and next fiscal
• Indian economy grew 7.2% in FY23

New Delhi: 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.

However, it cut the growth estimates for the next fiscal (2024-25) to 6.4 per cent, from 6.9 per cent, as it expects growth to slow on a higher base, subdued global growth and lagged impact of interest rate hike.

“We have revised up our projection for India’s GDP growth for fiscal 2024 (ending in March 2024) to 6.4 per cent, from six per cent, as robust domestic momentum seems to have offset headwinds from high food inflation and weak exports,” S&P said.

The estimate of S&P is a shade higher than other international agencies. The IMF, World Bank, ADB, and Fitch expect India’s GDP to expand 6.3 per cent in the current fiscal. The RBI has projected GDP growth at 6.5 per cent for current as well as next financial year. The Indian economy grew 7.2 per cent in the 2022-23 fiscal year ended March 2023. The country’s real GDP rose 7.8 per cent year-on-year in the June quarter, up from 6.1 per cent in the March quarter.

To rein in inflation, the RBI had hiked benchmark interest rates by 250 basis points since May last year. The apex bank has held the repo rate steady at 6.5 per cent since February. 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 four per cent, 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,” S&P said. Risks remain but so also does the potential for growth in the region.

In coming months, the spotlight may shine a little more brightly on emerging markets where domestic demand is strong, S&P said.

With regard to China, S&P said the outlook for the country has improved, but obstacles still remain. S&P raised its 2023 and GDP growth forecast for China to 5.4 per cent and 4.6 per cent. Still, with the property sector struggling and confidence subdued, the growth outlook remains moderate, it said.

“China is coping while its neighbors step up. A property downturn is still a pain point for the Chinese economy, but growth momentum has slightly improved because of policy support,” said Louis Kuijs, Asia-Pacific chief economist at S&P Global Ratings. Emerging market economies with solid domestic demand are posting the strongest growth, Kuijs added.