Fitch Raises India’s Growth Forecast for FY25 to 7.2%

Current Fiscal Year Revision

Fitch Ratings has raised India's growth forecast for the fiscal year 2024-25 to 7.2%, up from the 7% projected in March. This upward revision reflects a recovery in consumer spending and increased investment. The updated forecast was detailed in Fitch's Global Economic Outlook report released on June 18.

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Economic Drivers

According to Fitch, the Indian economy is expected to expand robustly due to several key factors:

• Consumer Spending: There is a noticeable recovery in consumer spending, bolstered by high consumer confidence.

• Investment: Although investment growth is predicted to slow compared to recent quarters, it will continue to contribute significantly to the economy.

• Rural Demand and Inflation: The Reserve Bank of India (RBI) has similarly projected a 7.2% growth, supported by improving rural demand and moderating inflation.

Growth Indicators

Data from purchasing managers' surveys suggest continued economic growth at the beginning of the financial year. An anticipated normal monsoon season is expected to support agricultural productivity and stabilize inflation, although a recent heatwave poses potential risks.

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Long-Term Projections

For the fiscal years 2025-26 and 2026-27, Fitch projects growth rates of 6.5% and 6.2%, respectively. The forecast indicates that growth will increasingly be driven by consumer spending and sustained investment. Fitch expects economic growth to slow down in later years, approaching their medium-term trend estimate.

Past Performance and Inflation Outlook

In the previous fiscal year (2023-24), the Indian economy grew by 8.2%, with a 7.8% expansion in the March quarter alone. Fitch anticipates inflation to decline to 4.5% by the end of 2024, with an average of 4.3% expected in 2025 and 2026. Additionally, the RBI is expected to cut policy interest rates by 25 basis points this year, bringing them to 6.25%.

Conclusion

Fitch's revised growth forecast aligns with positive economic indicators and supportive fiscal policies. Continued investment, robust consumer confidence, and favorable monsoon conditions are poised to drive India's economic expansion, despite potential challenges such as climatic disruptions.

Also Read: India’s Record Low Core CPI Overshadowed by Surging Food Prices: Can Monsoons Provide Relief?