S&P Global Ratings has reaffirmed India’s growth forecast for the current fiscal year at 6 percent, citing several factors affecting the economic landscape. This announcement comes amid a backdrop of global economic challenges, concerns over subnormal monsoons, and the delayed effects of interest rate hikes.
Fiscal Year 2023-24
India’s economy posted robust growth of 7.8 percent in the first quarter of 2023, bolstered by strong demand in the services sector and sustained capital expenditure by the government.
S&P Global Ratings maintains a positive outlook, projecting India’s economy to grow at 6.9 percent in both the fiscal years 2024-25 and 2025-26. This demonstrates confidence in India’s economic prospects despite the global headwinds.
Slowing World Economy
The global economy has shown signs of slowing down, contributing to S&P’s decision to retain India’s growth forecast. The interconnectedness of economies means that international conditions have a bearing on India’s economic performance.
Subnormal Monsoons
Concerns about subnormal monsoons, which can adversely affect agriculture, a critical sector in India, have played a role in the assessment. Adequate rainfall is essential for agricultural productivity and food security.
Delayed Effects of Rate Hikes
The impact of interest rate hikes, aimed at managing inflation, is expected to have a delayed effect on the economy. This factor further contributes to the cautious growth forecast.
S&P Global Ratings anticipates that inflation in India will rise to 5.5 percent in fiscal year 2024, up by 50 basis points from the earlier projection of 5 percent. This adjustment in inflation expectations has implications for monetary policy.
Rate Cut in FY25
S&P Global Ratings now expects the Reserve Bank of India (RBI) to implement a rate cut in fiscal year 2025, aiming to bring interest rates down to 5.5 percent by the end of the next fiscal year.
Earlier Projections
Previously, S&P had forecasted a rate cut of 25 basis points by the end of fiscal year 2023, followed by a one percentage point reduction in fiscal year 2025.
RBI’s Upcoming Decision
Experts anticipate that the Reserve Bank of India will maintain the policy rate at 6.5 percent in its upcoming meeting, marking the fourth consecutive instance of rate stability. This reflects the central bank’s focus on stabilizing core inflation as a sign of broad-based easing of prices.
S&P Global Ratings’ decision to retain India’s growth forecast at 6 percent for the current fiscal year underscores the complex and interconnected nature of the global economic landscape. As India continues to navigate these challenges, it remains poised for steady growth in the coming years, demonstrating resilience in the face of evolving economic dynamics.
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