Despite a robust expansion in Q1, S&P Global Ratings maintained its prediction for India's growth in FY24 at 6% on Monday, citing a weakening global economy, rising risks from a below-average monsoon, and the delayed effect of rate hikes. Inflation is expected to rise in FY24, according to the ratings agency.
The government's continued drive for capital expenditures and robust demand for services propelled India's economy to 7.8 percent growth in the country's fiscal first quarter, which ran from April to June.
"Capital expenditure growth was notably strong in Australia, India, Malaysia, and New Zealand," S&P wrote in its Economic Outlook Asia-Pacific Q4 2023 report. According to the international ratings agency, inflation would rise to 5.5% in FY24, from 5% previously predicted, delaying the rate drop until FY25.
The article states, "In India, consumer inflation was 6.8% in August, above the Reserve Bank of India's upper tolerance limit of 6% due to the increases in global oil and food prices and the jumps in vegetable prices."
According to S&P's latest forecast, the RBI will reduce rates in FY25 to 5.5 % by the end of the next fiscal year. It had previously planned a rate lowering of 0.25 percentage points by the end of FY24, followed by another reduction of 0.25 percentage points in FY25.
Experts predict that the Reserve Bank will keep the policy rate steady at 6.5% during its meeting next week. The Fed has held rates steady for the past three policy sessions.
In its State of Economy report earlier this month, the RBI had emphasised stable core inflation as a sign of broad-based softening of prices.
The Reserve Bank of India forecasts GDP growth of 6.5% for FY24.
The research and analysis division of S&P Global, S&P Global Market Intelligence, increased India's growth prediction to 6.6% for FY24 earlier this month, predicting greater inflation. Co-operation and Development Bank of Canada has boosted its prediction for the Canadian economy to a 6.3% increase in the coming year. The ADB has revised its growth projection for India down to 6.3% from 6.4%.
Rosier future, amid Concerns
The ratings agency is maintaining its 6.9% growth prediction for India in both FY25 and FY26, and it is expecting growth of 7.0% in FY27. S&P said that "India and China grew by 19.6% and 16.9%, respectively, since the fourth quarter of 2019 (before Covid-19)," making them the fastest-growing major economies.
Concerning inflation, it revised its estimate for India down to 4.4% for 2019 from 4.5%. There is an anticipated decrease in the policy rate to 5.25% by FY26.
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