S&P retains India’s GDP forecast at 6.8% for FY25; expects rate cut by Oct

Global ratings agency S&P Global Ratings has retained India's growth forecast at 6.8% for the financial year 2024-25 and 6.9% for 2025-26. In its economic outlook for Asia Pacific, S&P Global says it expects the country's central bank to start reducing key interest rates by October. "In India, GDP growth moderated in the June quarter as high interest rates temper urban demand, in line with our projection of 6.8 per cent GDP for the full fiscal year 2024-2025," says S&P.

According to S&P, India is set to become the third-largest economy and transition to the upper-middle-income category by fiscal 2030–31 if forecast annual growth of 6.7% is realised.

S&P economic projections are lower than the RBI's forecast. The RBI expects the economy to grow at 7.2% in FY25. The economic growth in Q1 is pegged at 7.1%, Q2 at 7.2%, Q3 at 7.3%, and Q4 at 7.2%. The RBI is of the opinion that price stability is important to support growth.

In the fiscal year to March 2024, India’s growth surprised on the upside at 8.2%, exceeding the government’s earlier estimate of 7.3%. "The continuation of structural reforms to facilitate business transactions and improve the logistics sector will support private sector investment, making growth less dependent on public capital expenditure," says the report.

S&P says in the post-pandemic world, India has emerged as the fastest-growing large economy, with healthy medium-term prospects. Notably, FY25 started on a “strong note” for India, with goods and services tax (GST) collections at an all-time monthly high of ₹2.1 lakh crore in April and remained healthy in May and June.

S&P says the growth will moderate in FY25 from a high base in fiscal 2023–24 but still India remains the fastest economy in the world. “The transmission of the Reserve Bank of India’s (RBI’s) rate hikes between May 2022 and February 2023 is underway and likely to modestly weigh on demand in fiscal 2024–25. Regulatory actions to tame unsecured lending are also slowing credit growth. Additionally, the government’s intended fiscal consolidation will mean a lower fiscal push for growth. Even at 6.8%, India would be the fastest-growing large economy.”

As the productivity continues to increase, India’s growth will get a boost, which will make it the third-largest economy by FY31, says S&P. The productivity increase will allow the economy to expand at 6.7% on average by the end of the decade, it adds. “The size of the country’s nominal GDP would nearly double to over US$7 trillion by fiscal 2030–31 from US$3.6 trillion in fiscal 2023–24. This would make India the third-largest economy in the world, raising its share in global GDP from 3.6% to 4.5% and lifting its per-capita income to the upper-middle-income group.”

Since India’s fiscal settings are constrained, it’s the private sector that will have to shoulder more investment responsibility, says the New York-based global agency. “India’s net general government debt is elevated at about 86% of GDP, and the government may choose to shore up its balance sheet to build up fiscal buffers. We expect industrial investments to continue gathering momentum in traditional sectors such as steel and cement, as well as in emerging sectors.”