S&P ups India's FY'24 growth forecast to 6.4% on robust domestic momentum

S&P ups India's FY'24 growth forecast to 6.4% on robust domestic momentum

S&P Global Ratings on November 27 increased its growth forecast for India in the current financial year (2023-24) to 6.4 percent, up from 6 percent, citing strong domestic momentum that has counteracted challenges from elevated food inflation and sluggish exports.

However, the US-based rating agency has lowered growth estimates for the next fiscal year (2024-25) to 6.4 percent, anticipating a slowdown in the second half (October-March) of the current fiscal year due to a higher base impact and subdued global growth. The positive revision for the current fiscal year is attributed to India's robust internal economic activity.

"We have revised up our projection for India's GDP growth for fiscal 2024 (ending in March 2024) to 6.4 per cent, from 6 per cent, as robust domestic momentum seems to have offset headwinds from high food inflation and weak exports." S&P said.

Also Read: July-September GDP growth seen at 6.8%, higher than RBI's forecast

The rating agency, however, expects a slowdown in growth during the second half of the fiscal year due to factors such as subdued global growth, a higher base, and the delayed impact of rate hikes. Consequently, S&P has revised down its growth outlook for fiscal year 2025 to 6.4 percent, compared to the earlier estimate of 6.9 percent.

The Indian economy registered a growth of 7.2 percent in the fiscal year 2022-23, concluding in March 2023. Notably, India's GDP expanded by 7.8 percent in the April-June quarter. According to S&P's Economic Outlook for the Asia Pacific region, the growth for this year and the next is expected to be robust, particularly in emerging market (EM) economies, with strong domestic demand in countries such as India, Indonesia, Malaysia, and the Philippines.

Also Read: SBI pegs Q2 FY24 GDP growth at 7.0%, farm performance seen robust

The agency pointed out that fixed investment has rebounded more substantially than private consumer spending in India. Plus, it observed a temporary increase in food inflation during the July-September quarter but suggested that it has had minimal impact on the fundamental inflation trends.

Despite the positive economic indicators, the agency noted that headline inflation in India remains higher than the Reserve Bank of India's (RBI's) target of 4 percent. This suggests that it may take some time before there is a shift in the interest rate cycle, according to S&P.

The agency highlighted that, along with Australia and the Philippines, lingering inflation risks are a concern for central banks. Additionally, the government's plans to expand fiscal policies in various countries could pose challenges for central banks in their policymaking.

The rating agency said that risks persist but also highlighted the potential for growth in the region, particularly in EMs where domestic demand is strong.

(With agency inputs)