India's GDP Growth Likely To Moderate, Govt Spending To Slow This Year
The RBI has revised up GDP growth for fiscal 2025 to 7.2 per cent from 7.0, with 7.3 per cent projected in the first quarter
Crisil Ratings in a report has said that Indian gross domestic product (GDP) growth is expected to moderate and government spending is likely to slow this year as it pursues fiscal consolidation, though the picture will get clearer in the union budget 2024-25.
The Reserve Bank of India's (RBI’s) past measures to tighten credit growth are also gradually reducing credit growth in targeted segments. This is likely to moderate demand in the current fiscal as well. Global growth remains uneven, and geopolitical risks-driven supply disruptions are a risk for exports, it added.
Also, global financial conditions are expected to gradually support supportive of easing of rates. The European Central Bank has been the first among advanced economies to cut rates. However, the rate cut by the US Federal Reserve will take longer, with S&P Global expecting the first rate cut in December 2024.
Based on these factors, “we now see the RBI cutting rates starting October 2024 at the earliest and have lowered our expectation to two rate cuts this fiscal against three foreseen earlier,” the report added.
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) kept policy rates unchanged for the eighth straight time in today’s meeting. Amid domestic economic growth exceeding expectations, the MPC remains focused on inflation risks and any external shocks.
The committee also maintained its stance of ‘withdrawal of accommodation'.
The MPC’s decision to hold rates at this juncture was expected in an environment of strong growth and little change in inflation trends. "Food inflation has been stubbornly high so far, even as core inflation – a firmer measure of demand pressures – stands at a record low.
As GDP growth momentum remains strong, the MPC sees space to keep monetary policy tight to ensure a durable decline in inflation towards its 4 per cent target. The cooling of food inflation is also crucial to anchor inflation expectations, given it accounts for a sizeable 39 per cent of an average Indian consumer basket, the share is higher for the poorer segments of society.
According to the data, economic growth in the fourth quarter of fiscal 2024 at 7.8 per cent was much stronger than expected, which prompted the National Statistics Office to revise its fiscal 2024 growth by a significant 60 bps to 8.2 per cent. The MPC also believes domestic demand is strengthening.
Notably, private consumption, which lagged last fiscal, is seen to be improving, driven by urban discretionary spending and a revival in rural demand. Investment activity remains strong as well, and external demand is becoming supportive of exports.
The MPC expects growth to remain strong in the current fiscal, driven by a normal monsoon driving up agriculture and rural consumption, services supporting urban consumption, conducive investment conditions (high capacity utilisation, healthy corporate balance sheets and government’s capex thrust) and improving global trade.
Assuming the growth momentum sustains, the RBI has revised up GDP growth for fiscal 2025 to 7.2 per cent from 7.0, with 7.3 per cent projected in the first quarter, 7.2 per cent in the second quarter, 7.3 per cent in the third quarter and 7.2 per cent in the fourth quarter.
