S&P Global Ratings has revised its growth projection for India in the upcoming financial year, forecasting a rise to 6.8 percent. However, it has highlighted concerns regarding restrictive interest rates that could potentially hinder economic expansion.
The current fiscal year saw the Indian economy achieve a growth rate of 7.6 percent, marking a significant performance.
Back in November of the previous year, the US-based agency had anticipated India's growth to reach 6.4 percent in the 2024-25 fiscal year, citing strong domestic momentum.
S&P's Economic Outlook for the Asia Pacific region underscores the anticipation of robust growth in Asian emerging market economies, with India, Indonesia, the Philippines, and Vietnam leading the pack.
The report notes that economies largely driven by domestic demand, such as India, Japan, and Australia, experienced a dampening effect on GDP growth in the latter half of the year due to higher interest rates and inflation impacting household spending power.
Looking ahead, S&P expects India's real GDP growth to moderate to 6.8 percent in the fiscal year 2025, ending in March 2025. It attributes this moderation to factors like restrictive interest rates, regulatory measures to control unsecured lending, and a lower fiscal deficit, all of which could suppress growth.
While acknowledging a potential slowdown in Asian emerging market economies, S&P remains optimistic about solid domestic demand growth and an uptick in exports. It reiterates India's position alongside Indonesia, the Philippines, and Vietnam in driving robust growth.
S&P predicts that high real policy rates may stifle demand, making a case for rate cuts. It anticipates rate cuts of up to 75 basis points in India for this fiscal year, primarily in the latter half, aligned with projections for US policy rates.
Factors like easing inflation, a reduced fiscal deficit, and lower US policy rates could pave the way for the Reserve Bank of India to initiate rate cuts. However, S&P suggests that further clarity on disinflation trends might delay this decision until June 2024 or later.
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