Fitch, a leading rating agency, has recently revised its estimate for India’s economic growth for the current fiscal year and the next. The agency now anticipates a real GDP growth of 7.0% in fiscal 2025, representing a 50 basis points increase from its previous forecast in December. This upward revision is based on the strong domestic demand and the consistent growth in business and consumer confidence levels in the country.
India witnessed a significant economic surge in the final quarter of 2023, with a growth rate of 8.4%, the fastest pace in 18 months. This growth was primarily driven by robust manufacturing and construction activities. While Fitch acknowledges this impressive performance, it also anticipates a slight moderation in growth momentum in the final quarter of the current fiscal year, projecting a growth rate of 7.8% for FY23/24.
Driving Forces and Growth Outlook
Fitch emphasizes that domestic demand, particularly in the investment sector, will be the primary driver of India’s economic growth. The agency foresees growth outpacing the estimated potential of the economy in the short term, with a subsequent moderation towards trend in fiscal 2025. This outlook is supported by sustained levels of business and consumer confidence in the market.
In terms of monetary policy, Fitch anticipates that the Reserve Bank of India (RBI) will implement interest rate cuts only in the second half of this calendar year. The agency has revised its estimate for rate cuts to 50 basis points, down from the previous 75 basis points, citing the stronger growth projections. Despite recent food price volatility, Fitch expects the headline inflation number to steadily decrease to 4% by the end of the year.
The RBI has maintained the repo rate at 6.50% in its last six consecutive meetings and remains committed to achieving the 4% inflation target on a sustainable basis. While Fitch’s projections are optimistic about India’s economic growth, there are uncertainties surrounding the global economic landscape and potential risks that could impact the country’s growth trajectory in the future.
Fitch’s revised estimates reflect a positive outlook for India’s economic growth in the coming years. However, the pace of growth moderation and the timing of rate cuts will be crucial factors to monitor as India navigates through both domestic and global economic challenges.