S&P Global Revises India's GDP and Inflation Projections

S&P Global Revises India’s GDP and Inflation Projections

S&P Global retained India’s FY25 GDP growth forecast at 6.8% but lowered FY26 to 6.7% from 6.9%, citing weaker urban demand due to high interest rates and fiscal constraints. Inflation for FY25 was raised to 4.6%, driven by food supply shocks linked to climate change.

Piyush Shukla Published On November 26th, 2024

S&P Global Ratings maintained India’s GDP growth forecast for FY25 at 6.8% while revising FY26 down to 6.7% from the earlier estimate of 6.9%. The agency also raised its inflation projection for FY25 to 4.6%, reflecting persistent food inflation and supply shocks in agriculture caused by climate factors like changing rainfall patterns and heatwaves. The Reserve Bank of India (RBI), mandated to keep inflation at 4% ± 2%, is expected to cut policy rates only once this fiscal year, with the repo rate held steady at 6.5% since February 2023.

Economic Growth Outlook

FY25: S&P retained the growth estimate at 6.8%, citing stable purchasing manager indices (PMIs) indicating economic expansion, though high interest rates and reduced fiscal spending are tempering urban demand.

FY26: Growth forecast lowered to 6.7%, reflecting global headwinds and domestic factors such as a construction sector slowdown in Q2 FY25.

Inflationary Trends and RBI’s Policy Stance

Inflation FY25: Raised to 4.6% (from 4.5%) due to agricultural supply shocks driven by climate irregularities.

RBI’s Dilemma: Food inflation, accounting for 46% of the inflation basket, has become harder to predict, complicating monetary policy decisions.

FY26 Inflation: Revised down to 4.4% (from 4.6%).

Regional and Global Context

Asia-Pacific: Growth dampened by weaker global demand and U.S. trade policies. China’s 2026 GDP growth projection was also cut to 3.8% from 4.5%.

India’s Momentum: Despite recent slack, the RBI predicts stronger recovery ahead, with a projection of 7.2% growth for FY25 in its latest bulletin.

Broader Implications

This update reflects both India’s resilience in maintaining steady growth and the challenges posed by inflationary pressures, global trade dynamics, and climate-induced agricultural shocks. The cautious monetary stance and persistent inflation signal a balancing act between growth and price stability.

Summery of the news

Key Points	Details
Why in News	S&P Global retained India’s FY25 GDP growth forecast at 6.8% but lowered FY26 to 6.7% (from 6.9%).
FY25 GDP Forecast	6.8%
FY26 GDP Forecast	Revised down to 6.7% from 6.9%.
FY25 Inflation Projection	Increased to 4.6% from 4.5%.
FY26 Inflation Projection	Reduced to 4.4% from 4.6%.
RBI Repo Rate	6.5% (unchanged for 10 consecutive times since February 2023).
Inflation Basket Weight	Food items constitute 46%.
RBI’s Inflation Target	4% ± 2% (mandated by the government).
Challenges to Growth	High interest rates, reduced fiscal impulse, climate-related food supply shocks.
Asia-Pacific Outlook	Slower growth due to weak global demand and U.S. trade policies.
China’s 2026 GDP Projection	Revised down to 3.8% from 4.5%.
Last FY Growth (India)	8.2%.
RBI FY25 Growth Projection	7.2%.