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Fitch raises India's GDP forecasts for FY24 and FY25
The agency also noted a gap between GDP and gross value-added (GVA), calling it "unusually wide" but expected to normalize
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Fitch raises India's GDP forecasts for FY24 and FY25 / Pexels
Fitch, a leading ratings agency, has upgraded its growth forecasts for India's GDP in fiscal years 2024 and 2025. This revision, seen as significant, reflects a brighter outlook fueled by stronger domestic demand and increased confidence among businesses and consumers.
In its latest assessment, Fitch raised its GDP growth projection for FY24 to 7.8 percent, up from the earlier 6.9 percent predicted in December 2023. Similarly, for FY25, the agency revised its estimate to 7 percent, compared to the earlier forecast of 6.5 percent. This adjustment also includes a reduction in expectations for future rate cuts.
The agency attributes the improved forecasts to sustained growth momentum, with GDP exceeding 8 percent for three consecutive quarters. Despite expecting a slowdown towards the end of the current fiscal year, Fitch remains optimistic about India's economic performance, highlighting the importance of domestic demand and robust investment and consumption growth.
Fitch also noted a gap between GDP and gross value-added (GVA), calling it "unusually wide" but expected to normalize. Additionally, the agency pointed out potential risks in its projections, citing strong business survey data for January and February.
Fitch's upward revision aligns with similar adjustments made by other global ratings agencies, like S&P and Moody’s, following India's impressive 8.4 percent GDP growth in the October-December quarter. This growth, driven by strong performances in manufacturing and construction sectors, reaffirmed India's status as the fastest-growing economy globally.
While Fitch's forecasts for FY24 surpass the government's revised estimates of 7.6 percent, they fall slightly short of Reserve Bank of India Governor Shaktikanta Das’ projection of close to 8 percent.
Given the improved growth outlook, Fitch expects the RBI to opt for a 50-basis points rate cut from July to September, revising its previous estimate downward from 75 basis points. The agency also emphasized the role of food prices in determining inflation dynamics, projecting headline retail inflation to decline to 4 percent by the end of December 2024.
Despite the RBI maintaining a steady repo rate at 6.5 percent, the central bank remains committed to achieving its 4 percent inflation target sustainably.
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