MUMBAI- Rating agency Fitch, on Thursday, raised its estimate for India’s economic growth for this fiscal year and next due to strong domestic demand and persistent growth in business and consumer confidence levels, but tempered its view on rate cuts.
Fitch expects the Indian economy to continue its strong expansion, with real gross domestic product forecast to increase by 7.0 percent in fiscal 2025, which starts in April, a 50 basis points (bps) increase from its December forecast, it said in a report.
India’s economy grew 8.4 percent in the final three months of 2023, its fastest pace in 18 months, led by strong manufacturing and construction activity.
“With GDP growth having exceeded 8 percent for three consecutive quarters, we expect an easing in growth momentum in the final quarter of the current fiscal year, implying an estimate of 7.8 percent for growth in FY23/24,” Fitch said.
The rating agency’s forecast for fiscal 2024, which ends this month, is above the Indian government’s revised estimate of 7.6 percent and one of the most bullish on record.
However, Reserve Bank of India chief Shaktikanta Das recently said growth could be very close to 8 percent .
“Domestic demand, especially investment, will be the main driver of growth, amid sustained levels of business and consumer confidence,” Fitch said.
“Our forecasts imply that growth in the short term will outpace the economy’s estimated potential, and that the pace of growth of activity will then moderate towards trend in FY25.”
On retail inflation, Fitch expects the headline number to steadily decrease to 4 percent by the end of this calendar year on the assumption that recent food price volatility will subside.
It now expects the Reserve Bank of India to cut interest rates only in the second half of the calendar year, lowering its estimate to 50 bps of rate cuts, from 75 bps in December, due to the stronger growth outlook.
The RBI has kept the repo rate unchanged at 6.50 percent for the last six consecutive meetings and has reiterated its commitment to reaching the 4 percent inflation target on a sustainable basis.
