S&P Global Maintains India's 2024-25 GDP Forecast Amid Inflation Challenges

S&P Global Ratings has held India's GDP growth forecast for 2024-25 steady at 6.8%, but reduced expectations for the subsequent two years due to persistent inflation, particularly in food prices. The RBI has been cautious about rate cuts, given the high inflationary pressures driven by supply and climate challenges.

S&P Global Ratings on Monday maintained its forecast for India's GDP growth in the current fiscal year, 2024-25, at 6.8%, despite lowering growth expectations for the following years. For 2025-26 and 2026-27, the GDP forecasts were adjusted down by 20 basis points to 6.7% and 6.8%, respectively.

The global rating agency highlighted that high interest rates and reduced fiscal stimulus are likely to curb urban demand in India. While purchasing manager indices remain strong, other indicators suggest temporary slowing of momentum, notably due to a setback in the construction sector during the September quarter.

Meanwhile, India's central bank, the Reserve Bank of India (RBI), has expressed optimism, stating that the slowdown in the economy observed in the second quarter of 2024-25 is now over, with private consumption driving demand again. The RBI projects India's GDP growth to be 7.2% for 2024-25.

India's economy expanded by 8.2% in the fiscal year 2023-24, maintaining its status as the fastest-growing major economy. However, persistent food inflation has delayed potential interest rate cuts by the RBI, leaving the repo rate at 6.5%. Consumer inflation saw a rise to 6.21% in October, surpassing RBI's upper tolerance limit.

S&P Global Ratings pointed to climate change-related disruptions and supply shocks in agriculture as key contributors to rising food prices, complicating the inflation outlook. Consequently, the RBI has exercised caution in considering rate adjustments, aligning its fiscal policies with persistent inflationary threats.

(With inputs from agencies.)