S&P retains India’s FY24 GDP forecast at 6% on slowing world economy

US-based global ratings agency S&P Global Ratings has retained India's growth forecast in the financial year 2023-24 at 6%. Notwithstanding the strong expansion in India in the June quarter, the S&P, in its Economic Outlook for Asia Pacific Q4 2023 report, says it has maintained its forecast for FY24 (ending March 2024), citing the slowing world economy, the delayed effect of rate hikes, and the rising risk of subnormal monsoons.

S&P's latest real GDP forecast shows India's economy growing at 6.9% in FY25 and FY26, respectively. The growth estimates for India are lower than the government and the RBI's forecast of 6.5% growth in FY24.

India’s economy grew at 7.8% in the April-June quarter of 2023-24. The government has attributed strong “domestic demand for consumption and investment” driving the GDP growth in Q1. 

On inflation, S&P says while the vegetable price inflation is "temporary", it has revised up full fiscal year consumer inflation forecast for India to 5.5% from 5% earlier. S&P's inflation forecast for India remains at 4.4% and 4.6% in FY24 and FY25, respectively.

"In India, the increases in global oil and food prices, combined with jumps in vegetable prices, raised consumer inflation by a large margin; it was 6.8% in August, above the Reserve Bank of India's (RBI) upper tolerance limit of 6%," says S&P.

New price pressures are hampering efforts to curb inflation, says S&P, adding that in recent months, sequential core price increases have eased across the board, which is crucial for reducing headline year-on-year inflation.

However, recent increases in international prices of oil and food, especially rice, showed up in higher headline inflation in August in most Asia-Pacific economies, says the ratings agency. "A fuller picture of the effect will emerge in coming months, depending on the evolution of global prices and government policies (an export ban on rice in India, the world's largest rice exporter, contributed significantly to the increase in rice prices in Asia)."

S&P says growth in the Asia Pacific region has generally remained "resilient", with year-on-year GDP growth picking up in the second quarter in both developed and emerging Asian economies. "India led again, with GDP growing 4.2% quarter on quarter to a level 7.8% up on a year ago."

Overall, S&P says it expect the region excluding China to grow by 3.9% in 2023, compared with 3.8% in June. “We keep our 2024 forecast at 4.4%, with the pick-up over 2023 due to a gradual improvement in external demand and monetary policy easing.” 

The global agency says China is expected to continue to contain its "macroeconomic stimulus", following a property-driven downturn. It has cut the 2023 growth forecast for China to 4.8%, from 5.2%, and that for 2024 to 4.4%, from 4.8%.

While the rest of the region is slowing on "weaker global trade and higher interest rates", S&P says it slightly raised the forecast for 2023 growth to 3.9% amid domestic resilience. "Growth should rise to 4.3% in 2024 on better external demand and monetary policy easing."