S&P Global, in its latest report, has forecasted robust economic growth for India in the medium term, estimating a GDP expansion ranging between 6 to 7.1 percent annually from FY24 through FY26.
Economic Growth Momentum:
The report emphasizes that India’s economic growth momentum is expected to persist, projecting a steady annual GDP growth between 6-7.1 percent during the period 2024-2026.
Banking Sector Resilience:
S&P Global anticipates a decline in weak loans in the banking sector, projecting a decrease to 3-3.5 percent of gross advances by the end of FY25. This positive shift is attributed to structural enhancements, including healthier corporate balance sheets, tightened underwriting standards, and improved risk-management practices.
Interest Rates and Banking Industry Stability:
The report highlights that interest rates in India are unlikely to experience a significant rise, minimizing risks for the banking industry. This stability is expected to result from factors such as healthy corporate balance sheets and improved risk management.
Global Impact and Domestic Orientation:
S&P Global suggests that global uncertainties are likely to have a reduced impact on the Indian economy. With a primarily domestic orientation, India’s economic growth is anticipated to be less affected by slower global growth and external demand. However, the report warns of potential inflationary pressures as a consequence.
Asset Quality Challenges Addressed:
The report notes that major players in the Indian banking sector, including the State Bank of India and leading private-sector banks, have effectively addressed their asset-quality challenges. This positive development contributes to the overall resilience of the financial sector.
Alternative Perspective:
While S&P Global is optimistic, it’s worth noting that Morgan Stanley has forecasted a slightly lower growth rate of around 6.5 percent for FY24 and FY25. Morgan Stanley attributes this to strong domestic fundamentals and ongoing policy reform measures supporting domestic demand. However, the report mentions that unexpected outcomes in the upcoming general elections could introduce uncertainties affecting growth and macroeconomic stability.
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