S&P Global Maintains 6.8% Growth Forecast for FY25

S&P Global has maintained its 6.8% GDP growth forecast for FY25, despite a weaker-than-expected 5.4% growth in Q2FY25. The agency anticipates a modest 50 basis points repo rate cut by the RBI in 2025, driven by easing inflation.

Piyush Shukla Published On December 11th, 2024

S&P Global has maintained its projection for India’s GDP growth at 6.8% for FY25, despite a weaker-than-expected 5.4% growth in Q2FY25. This forecast comes in the wake of the Reserve Bank of India (RBI) lowering its own growth estimate to 6.6%. The credit rating agency anticipates a modest monetary policy easing by the RBI in 2025, with a 50 basis points reduction in the repo rate. S&P’s optimistic outlook is driven by strong urban consumption, steady service sector growth, and infrastructure investments.

S&P’s Growth Outlook and Key Factors

Projected Growth for FY25: S&P Global has retained its 6.8% growth forecast for FY25, followed by 6.9% for FY26. This growth projection is 0.2% higher than the RBI’s estimate of 6.6% for FY25.

Slower Q2 Growth: India’s economy slowed to 5.4% in the July-September quarter, prompting various agencies to reduce their full-year growth expectations, including Goldman Sachs and UBS. Despite this, S&P remains confident in a rebound for the second half of FY25.

Monetary Policy Expectations: S&P expects the RBI to ease monetary policy in 2025 as inflationary pressures recede, projecting a 50 basis points reduction in the repo rate. The agency also forecasts retail inflation to average 4.5%, slightly lower than the RBI’s estimate.

Challenges and Risks

Weakness in Key Sectors: Manufacturing sector challenges, post-pandemic weaknesses in public sector and household balance sheets, and slow agricultural growth are cited as risks that may hinder India’s growth momentum.

Job Creation and Infrastructure: S&P highlights the importance of creating jobs, improving urban infrastructure, and boosting technology to support higher labor force participation and drive economic growth.

Government’s Stance and Actions

Optimistic Government Projections: Despite external concerns, the Indian government remains optimistic and is aiming for a 6.5-7% growth in FY25, expecting a stronger second half of the fiscal year.

Summary of the news

Why in News	Key Points
S&P Global retains 6.8% growth forecast for FY25	– S&P Global forecasts 6.8% GDP growth for India in FY25.
	– Despite Q2FY25 GDP growth slowing to 5.4%, S&P maintains its growth outlook for the fiscal year.
Expectations for RBI policy rate cut	– S&P expects RBI to ease the policy repo rate by 50 basis points in FY25.
	– Retail inflation expected to average 4.5% in FY25, lower than RBI’s projection.
Urban consumption and infrastructure driving growth	– Growth driven by urban consumption, service sector expansion, and infrastructure investment.
Challenges to growth	– Risks include manufacturing sector weakness, weak agriculture growth, and post-pandemic balance sheet issues.
RBI’s previous growth forecast	– RBI lowered India’s FY25 growth forecast to 6.6% from 6.8%.
Q2FY25 GDP performance	– India’s GDP grew at 5.4% in the July-September quarter of FY25, weaker than expected.
Government’s optimistic target	– Government aims for 6.5-7% growth for FY25, expecting stronger growth in H2.
Relevant Statistical Facts	– S&P’s growth forecast for FY25 is 0.2% higher than RBI’s 6.6% estimate.
India’s Economic Growth in 2023-24	– India’s economy grew by 8.2% in 2023-24.