New Delhi (TIP)- S&P Global Ratings has raised India’s growth forecast for the next financial year to 6.8 per cent, but flagged restrictive interest rates as a dampener for economic growth.
The Indian economy is estimated to have clocked a growth of 7.6 per cent in the current fiscal. In November, last year, the US-based agency had projected India’s growth to be 6.4 per cent in 2024-25 fiscal on robust domestic momentum. “For Asian emerging market economies, we generally project robust growth, with India, Indonesia, the Philippines, and Vietnam in the lead,” S&P said in its Economic Outlook for the Asia Pacific.
In largely domestic demand-led economies such as India, Japan, and Australia, the impact of higher interest rates and inflation on household spending power reduced sequential GDP growth in the second half, S&P said.
“We expect India’s real GDP growth to moderate to 6.8 per cent in fiscal year 2025 (ending March 2025),” S&P said. Restrictive interest rates are likely to weigh on demand next fiscal year, while regulatory actions to tame unsecured lending will affect credit growth. A lower fiscal deficit will also dampen growth, it added.
“Even as we expect a mild slowdown in Asian EM economies, we generally see solid domestic demand growth and a pick-up in exports to drive robust growth, with India, Indonesia, the Philippines and Vietnam in the lead,” S&P said. It said high real policy rates will choke demand and are therefore likely to strengthen the case for lowering rates.
Highlighting India’s strength and stability as hallmarks of the current financial cycle, Morgan Stanley has raised its GDP (gross domestic product) growth forecast for the fiscalyear 2024-25 (FY25) to 6.8 per cent from its previous estimate of 6.5 per cent.
It also revised its growth forecast for the current financial year (FY24) to 7.9 per cent.
Morgan Stanley anticipates a shallow easing cycle in monetary policy, driven by continued traction in industrial and capital expenditure activities.
The outlook for India’s economic growth remains robust, with the expectation that growth will track around 7 per cent in the fourth quarter of the financial year 2023-24, said Morgan Stanley.
This growth momentum is expected to be broad-based, with the gaps between rural-urban consumption and private-public capital expenditure narrowing in FY25, it added.
Further, Morgan Stanley said that it anticipates a favourable inflation trajectory, with recent trends indicating a softening in headline inflation.
In FY25 the headline inflation could fall to 4.5 per cent from 5.4 per cent in FY24, while core inflation is projected to remain muted at 4.1 per cent, according to Morgan Stanley.
The firm also anticipates a continuation of supply-chain normalisation along with easing commodity price pressures, contributing to the disinflation trend.
Morgan Stanley also highlighted the potential risks stemming from global factors and domestic uncertainties.
It said that slower-than-expected global growth, higher commodity prices, and tighter global financial conditions pose risks to India’s growth and macroeconomic stability.