Fitch Ratings Upgrades India's Growth Forecast To 7 Per Cent For Next Fiscal Year

GDP forecast: Fitch's decision follows a stronger-than-expected growth of 8.4 per cent in India's gross domestic product during the third quarter (October-December) of the current fiscal year

Fitch Ratings announced on Thursday a revision of its forecast for India's economic growth, projecting a robust 7 per cent expansion for the upcoming fiscal year beginning April 1. This upgrade is attributed to the nation's resilient domestic demand and sustained levels of confidence among both businesses and consumers.

The rating agency's decision follows a stronger-than-expected growth of 8.4 per cent in India's gross domestic product (GDP) during the third quarter (October-December) of the current fiscal year. Fitch now anticipates the Indian economy to expand by 7.8 per cent in the 2023-24 financial year (April 2023 to March 2024), slightly surpassing the government's estimate of 7.6 per cent.

According to Fitch's latest 'Global Economic Outlook', India's economic performance has consistently outperformed quarterly projections, driven by robust domestic demand. Notably, investment growth surged by 10.6 per cent year-on-year, while private consumption witnessed a 3.5 per cent increase.

On a global scale, Fitch Ratings has also revised its 2024 global GDP growth forecast by 0.3 percentage points to 2.4 per cent, reflecting improved near-term growth prospects worldwide. This adjustment is primarily supported by a significant upward revision of the US growth forecast to 2.1 per cent, up from 1.2 per cent in the previous Global Economic Outlook.

While Fitch slightly reduced its China 2024 growth forecast to 4.5 per cent from 4.6 per cent, it expects growth in emerging markets, excluding China, to rise to 3.2 per cent. Forecasts for countries like India, Russia, and Brazil have been revised upwards.

Looking ahead, Fitch Ratings anticipates India's GDP growth to ease slightly in the final quarter of the current fiscal year, resulting in an estimated growth rate of 7.8 per cent for FY24. However, strong business survey data for January and February presents potential upside risks to these projections.

Furthermore, Fitch predicts a 0.5 percentage point upward revision in real GDP growth for FY25, forecasting a 7 per cent increase, driven primarily by domestic demand, particularly investment. However, it expects growth to moderate towards trend in FY25, with real GDP rising by 6.5 per cent.

In terms of inflation, Fitch notes a pickup in consumer price inflation in late 2023 driven by food prices, with CPI inflation reaching 5.7 per cent year-on-year in December before dropping to 5.1 per cent in February. The agency expects headline inflation to steadily decrease to 4 per cent by the end of the calendar year.

The Reserve Bank of India (RBI) has maintained its key policy rate at 6.5 per cent, emphasising a hawkish policy stance focused on reducing inflation towards the target of 4 per cent. Fitch now predicts a rate cut by the RBI in the second half of 2024, reducing rates by 50 basis points, revised from the previously forecasted 75 basis points, in light of the stronger growth outlook.