Fitch Ratings on Tuesday raised its growth estimates for India by 20 basis points (bps) to 7.2 per cent—same as that of the Reserve Bank of India (RBI)—citing a positive economic outlook driven by recovering consumer confidence and increased investment.
“Investment will continue to rise but more slowly than in recent quarters, while consumer spending will recover with elevated consumer confidence. Purchasing managers’ survey data point to continued growth at the start of the current financial year. Signs of the coming monsoon season being more normal should support growth and make inflation less volatile, though a recent heatwave poses a risk,” the rating agency said in its latest Global Economic Outlook.
The Indian economy grew at an impressive rate of 8.2 per cent in FY24, driven by a stronger-than-expected expansion of 7.8 per cent in the fourth quarter.
The rating agency said growth in later years may slow and approach its medium-term trend estimate. “We forecast real GDP growth of 6.5 per cent in FY25/26 (unchanged from March), and 6.2 per cent in FY26/27, driven by consumer spending and investment,” it added.
While highlighting the decrease in retail inflation, Fitch acknowledged persistent high food price inflation. “We expect headline inflation to continue declining to 4.5 per cent by calendar year-end, and average 4.3 per cent in 2025 and 2026, staying slightly above the mid-point of its target range,” the rating agency said.
Fitch said it expects the RBI to cut its policy rate this year, but only once, to 6.25 per cent. “In the March Global Economic Outlook, we expected 50 basis points of cuts this year. We then expect 25 basis points of cuts in both 2025 and 2026,” it added.
At its latest meeting last month, the RBI maintained the policy rate at 6.5 per cent and confirmed its hawkish stance of “withdrawal of monetary accommodation” and the need to bring down inflation towards the 4 per cent target.
Last week, the World Bank maintained India’s growth forecast at 6.6 per cent for FY25, affirming India’s position as the fastest-growing economy among major economies. Meanwhile, the RBI raised its growth projection for FY25 to 7.2 per cent from an earlier estimate of 7 per cent in its latest monetary policy review in May.
“The forecast of above-normal southwest monsoon by the India Meteorological Department (IMD) is expected to boost kharif production and replenish reservoir levels. Strengthening agricultural sector activity is expected to boost rural consumption. On the other hand, sustained buoyancy in services activity should continue to support urban consumption. The healthy balance sheets of banks and corporates, the government’s continued thrust on capital expenditure, high capacity utilisation, and business optimism augur well for investment activity. External demand should get a fillip from improving prospects of global trade,” RBI Governor Shaktikanta Das highlighted in his monetary policy statement.
First Published: Jun 18 2024 | 7:51 PM IST
