Skewed consumption demand and global headwinds affecting exports, identified as constraints to growth
India Ratings and Research on Monday upgraded its GDP growth forecast for 2024-25 to 7.1% from 6.5%, citing strong support to the growth momentum from sustained government capex and deleveraged corporate and bank balance sheets, even as consumption demand and exports pose constraints.
The rating firm’s GDP growth expectations for this year, on the back of a 7.6% rise in 2023-24, are a tad higher than the 7% projected by the Reserve Bank of India. However, it expects a 6.9% uptick in the Gross Value Added in the economy this year, the same level as last year.
Private consumption spends are expected to rise at a three-year high pace of 7% this year, from just 3% last year, thanks to the above normal monsoon forecast, which bodes well for weak rural consumption trends, the firm said. However, it stressed that sustained real wage growth in lower income households is an imperative for a sustainable and broad-based recovery in consumption demand, noting that current consumption, driven by upper income households, is highly skewed.
On the 5.1% of GDP fiscal deficit target for this year, India Ratings said it is challenging but achievable. Goods imports are expected to rise 6.2%, faster than exports which could see a 5.1% uptick, taking the goods trade deficit to $280.7 billion from about $240 billion in 2023-24. However, remittances and software exports would help keep the current account deficit in check at $46.3 billion or 1.2% of GDP, the rating firm said.
