S&P raises FY25 GDP forecast to 6.8% for India

S&P Global has raised India's gross domestic product (GDP) forecast for the financial year 2024-25 (FY25) by 40 basis points to 6.8% and estimates the country to clock 7.6% GDP growth in 2023-24 (FY24).

The ratings agency in November 2023 had raised India’s GDP growth forecast to 6.4% from 6%.

“After a better-than-expected 7.6% growth in fiscal year 2024 estimated by the National Statistical Office, we expect India's real GDP growth to moderate to 6.8% in fiscal year 2025 (ending March 2025). 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,” says the latest 11-page report released by S&P Global on Monday.

S&P's current growth projections are lower than the Reserve Bank of India's (RBI) estimates. The central bank in its recent policy meeting said India could likely grow at 7% in FY25, with estimates for Q1 FY25 at 7.2%.

The central government's estimates also suggest the same. The finance ministry in a January report had said that FY24 marked the third successive year of 7% plus "strong" growth of the Indian economy even as the global economy struggles to grow at more than 3%.

In its latest report 'Economic Outlook Asia-Pacific Q2 2024: APAC Bides Its Time On Monetary Policy Easing', the New York-based global financial agency says India, along with Indonesia, the Philippines and Vietnam will be in the lead when it comes to economic growth in Asia-Pacific region in Q2 2024.

"For Asian emerging market (EM) economies, we generally project robust growth, with India, Indonesia, the Philippines, and Vietnam in the lead," says Louis Kuijs, Asia-Pacific chief economist at S&P Global Ratings.

Given the slowing inflation, lower fiscal deficit and lower policy rates in the U.S, says the S&P report, India could see a rate cut of about 75 basis points in the year 2024.

On neighbouring China, S&P says the GDP growth will likely slow down to 4.6% in FY25 from 5.2% in FY24, considering "continued property weakness and modest macro policy support". Additionally, deflation remains a key risk in China in the wake of poor consumption.

In other developed economies of Asia-Pacific, South Korea, Taiwan, and Singapore could see growth pick-up amid trade books. However, Japan and Australia, which depend on domestic demand for growth, could see a fall in economic growth, says S&P.

The ratings agency’s earlier estimates suggested that India will become a $6.7 trillion (GDP) economy by 2030-31, growing on an average of 6.7% per year from 2023-24. During this period, the country's per-capita income could also rise to about $4,500. India's GDP was $3.4 trillion in 2022-23.

According to S&P, India needs to take full advantage of its large and growing working-age population. "The short-term economic growth will stand on the shoulders of its 678.6 million strong labour force. Getting more women to enter the workforce will be pivotal for future growth as only 24% were participating in 2022.”

Among other major financial institutions, the International Monetary Fund (IMF) had said that India would emerge as the world's third-largest economy by 2027, hopping over Japan and Germany, as its GDP would cross 5 trillion dollars. By 2047, India aspires to be a developed economy.