The latest Fitch Ratings has cited a recovery in consumer spending and increased investment. File photo
| Photo Credit: The Hindu

Fitch Ratings on Tuesday, June 18, 2024, raised India’s growth forecast for current fiscal to 7.2 per cent, from 7 per cent projected in March, citing a recovery in consumer spending and increased investment.

For the fiscal years 2025-26 and 2026-27, Fitch projected growth rates of 6.5 per cent and 6.2 per cent, respectively.

“We expect the Indian economy to expand by a strong 7.2 per cent in FY24/25 (an upward revision of 0.2 pp from the March GEO),” Fitch said in its global economic outlook report.

Fitch’s estimates are in line with that of RBI which earlier this month projected Indian economy to expand 7.2 per cent in the current fiscal on the back of improving rural demand and moderating inflation.

Investment to continue, consumer spending to pick up

Investments will continue to rise but more slowly than in recent quarters, while consumer spending will recover with elevated consumer confidence, it said.

Fitch said purchasing managers survey data point to continued growth at the start of the current financial year.

It said signs of the coming monsoon season being more normal should support growth and make inflation less volatile, though a recent heatwave poses a risk.

“We expect growth in later years to slow and approach our medium-term trend estimate,” it said, adding growth will be driven by consumer spending and investment.

The Indian economy grew 8.2 per cent in the last fiscal (2023-24), with a 7.8 per cent expansion in March quarter.

Inflation, Fitch expects, will decline to 4.5 per cent by end 2024 and average 4.3 per cent in 2025 and 2026.

Fitch said it expects the RBI to cut policy interest rates by 25 basis points this year to 6.25 per cent.

Global rating agency Moody’s on March 4 raised India’s growth forecast for 2024 calendar year to 6.8%, from 6.1% estimated earlier, on the back of ‘stronger-than-expected’ economic data of 2023 and fading global economic headwinds.

India’s real GDP expanded 8.4% year-over-year in the fourth quarter of calendar year 2023, resulting in a 7.7% growth for full-year 2023.

“Capital spending by the government and strong manufacturing activity have meaningfully contributed to the robust growth outcomes in 2023,” Moody’s Investors Service said.

“With global headwinds fading, the Indian economy should be able to comfortably register 6-7% real GDP growth,” it added.

“India’s economy has performed well and stronger-than-expected data in 2023 has caused us to raise our 2024 growth estimate to 6.8% from 6.1%. India is likely to remain the fastest growing among G20 economies over our forecast horizon,” Moody’s said in its Global Macroeconomic Outlook for 2024. For 2025, the GDP growth is estimated at 6.4%.

The agency said high-frequency indicators show that the economy’s strong September and December quarter momentum carried into the March quarter of 2024.

“Robust goods and services tax collections, rising auto sales, consumer optimism and double-digit credit growth suggest urban consumption demand remains resilient. On the supply side, expanding manufacturing and services PMIs add to evidence of solid economic momentum,” Moody’s said.

This year’s interim Budget targets capital expenditure allocation of ₹11.1 lakh crore or 3.4% of GDP in 2024-25 (fiscal year 2025), 16.9% above the 2023-24 estimates. “We expect policy continuity after the general election and continued focus on infrastructure development,” Moody’s said.

The agency said while private industrial capital spending has been slow to pick up, it is expected to pick up with ongoing supply chain diversification benefits and investors’ response to the government’s Production Linked Incentive scheme to boost key targeted manufacturing industries.

“The year 2024 is an election year for several G20 countries including India, Indonesia, Mexico, South Africa (Ba2 stable), the U.K. and the U.S. Implications of elections can go beyond borders and economic and public policy in today’s increasingly fractious world,” it said.

“Leaders elected this year will influence domestic and foreign policies for the next four to five years. Businesses are accordingly responding to evolving geopolitical dynamics by reorganising supply chains and capital sources,” Moody’s said.

It said geopolitical realities will be influencing international trade flows, capital flows, international migration trends and international organisations in the years to come. Domestically, industrial and trade policies of several countries are intertwined with foreign policy.