S&P Raises India's FY'24 Growth Projection To 6.4% Due To Strong Domestic Momentum

On Monday, S&P Global Ratings revised India's growth forecast for the current fiscal year, raising it to 6.4 per cent from the earlier estimate of 6 per cent. The US-based rating agency attributed this adjustment to the robust domestic momentum that has effectively countered challenges posed by elevated food inflation and sluggish exports.

However, S&P has tempered its growth projections for the next fiscal year (2024-25) to 6.4 per cent, anticipating a slowdown in the second half (October-March) of the current fiscal year. This anticipated deceleration is attributed to factors such as a higher base impact, subdued global growth, and the lagged impact of rate hikes.

The agency stated, "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. Still, 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 per cent, from 6.9 per cent."

India's economy had recorded a growth rate of 7.2 per cent in the fiscal year 2022-23, which concluded in March 2023. Notably, the GDP had expanded by 7.8 per cent in the April-June quarter.

S&P highlighted that growth in the current and next year is poised to be strongest in emerging market economies with solid domestic demand, specifically mentioning India, Indonesia, Malaysia, and the Philippines. The agency noted a significant recovery in fixed investment compared to private consumer spending in India.

While acknowledging a transitory spike in food inflation during the July-September quarter, S&P emphasized that it had minimal impact on underlying inflation dynamics in India. Despite this, headline inflation remains above the Reserve Bank of India's target of 4 per cent, indicating a continuation of the current rate cycle.

S&P pointed out that lingering inflation risks are a concern in countries like Australia, India, and the Philippines, keeping central banks engaged. The agency also observed that the expansion of fiscal policies planned by several governments could complicate central banks' policymaking.

Although risks persist, S&P emphasised the potential for growth in the Asia-Pacific region, particularly in emerging markets with strong domestic demand. The rating agency suggested that in the coming months, attention may increasingly focus on these markets where domestic demand remains robust.