Fitch Ratings Raises India’s Growth Forecast By 20 Bps To 7.2% For Fy25

Fitch Ratings has increased its growth forecast for India to 7.2%, aligning with the Reserve Bank of India’s (RBI) prediction. This positive outlook is driven by improving consumer confidence and higher investment. Although investment is expected to continue rising, it will do so at a slower pace than in recent quarters.

FY 2023-24 Economic Performance

The Indian economy grew 8.2% in the fiscal year 2023-24, with a strong 7.8% expansion in the fourth quarter. Looking ahead, Fitch Ratings expects growth to moderate towards its typical trend, predicting GDP growth rates of 6.5% for FY 2024-25 and 6.2% for FY 2025-26, driven by consumer spending and investment.

While retail inflation has declined, food prices remain persistently high. Fitch expects headline inflation to decrease further, reaching 4.5% by the end of this year and averaging 4.3% in 2025 and 2026, slightly above the midpoint of the target range.

RBI’s Monetary Policy and World Bank’s Forecast

Fitch anticipates that the RBI will reduce its policy rate this year, but just once, to 6.25%. “In the March GEO, we expected 50bp of cuts this year. We then expect 25bp of cuts in 2025 and 2026,” it added.

At its latest meeting in May, the RBI kept the policy rate unchanged at 6.5% and emphasised its cautious stance on reducing monetary support to control inflation towards the 4% target. The World Bank has maintained India’s growth forecast at 6.6% for FY 2024-25, reaffirming India’s status as the fastest-growing major economy. Concurrently, the RBI raised its growth estimate for the same period to 7.2% from a previous forecast of 7%.

RBI Governor Shaktikanta Das highlighted the importance of the agricultural and service sectors in driving economic growth. “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 service activity should continue to support urban consumption. The healthy balance sheets of banks and corporates; the government’s continued thrust on capex; high capacity utilisation, and business optimism augur well for investment activity. External demand should get a fillip from improving global trade prospects,”.

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