Why S&P has lowered India's growth targets for FY26, FY27
S&P Global Ratings has kept its GDP growth forecast for India unchanged at 6.8% for fiscal year 2024-25. However, it has lowered the economic growth outlook for the next two years. The global rating agency now expects India's GDP to grow at 6.7% and 6.8% in fiscal years 2025-26 and 2026-27 respectively, a cut of 20 basis points from its earlier forecasts.
Factors influencing India's GDP growth
S&P Global Ratings said, "In India we see GDP growth easing to 6.8% this fiscal year (2024-25) as high interest rates and a lower fiscal impulse temper urban demand." The agency observed that while Purchasing Manager Indices (PMIs) remain firmly in the expansion zone, other high-frequency indicators indicate a temporary slowdown in growth momentum due to impacts on the construction sector in Q3.
RBI's outlook on India's economic recovery
The Reserve Bank of India (RBI) sounded optimistic about the country's economic recovery, saying the slowdown witnessed in Q2 of 2024-25 is now behind us. The central bank noted that private consumption has taken over as the main driver of domestic demand, with festival spending reviving real activity in October-December. This comes in contrast to S&P Global Ratings's note of a temporary deceleration in growth momentum.
India's GDP growth: A comparison of forecasts
The RBI has pegged India's 2024-25 GDP growth at 7.2%, while the IMF and World Bank have estimated it at 7.0%. These numbers differ from S&P Global Ratings's unchanged forecast of 6.8% for the year. Earlier this year, the Economic Survey tabled in Parliament tentatively estimated India's real GDP growth at 6.5-7% for 2024-25, noting that market expectations are higher.
India's economic performance and inflation challenges
India's economy grew a healthy 8.2% in FY 2023-24, remaining the fastest-growing major economy. The country also saw healthy growth in previous years with 7.2% in 2022-23 and 8.7% in 2021-22. However, stubborn food inflation is complicating the RBI's rate-cutting plans, with S&P Global Ratings predicting just one cut this fiscal year due to supply shocks in agriculture pushing food prices up.
