Fitch Updates Indian Economy Growth Projections for FY25 to 7%, Up from 6.5%

Fitch Ratings, a global rating agency, has upgraded Indian economy growth projections for the upcoming financial year (FY25) to 7% from the previously estimated 6.5%. The agency also anticipated growth for the current financial year to hit 7.8%, slightly surpassing the government's own forecast of 7.6%.

According to the Fitch India FY25 GDP growth forecast, domestic demand, particularly in investment, will be the primary driver of growth, supported by continuous high levels of business and consumer confidence. While short-term growth is expected to outpace the economy's potential, Fitch predicts moderation towards the trend in FY25, with real GDP projected to rise by 6.5% in FY26.

Fitch's economic outlook for India extends beyond India to emerging markets, excluding China, with notable improvements in growth prospects. India is anticipated to experience remarkable economic expansion, with GDP growth predictions for FY25 set at 7%, following an impressive surge to 7.8% in the fiscal year concluding in March 2024. Despite GDP growth exceeding 8% for three consecutive quarters, a slowdown is anticipated in the final quarter of the current financial year.

Additionally, Fitch highlights an uptick in consumer price inflation towards the end of 2023, primarily driven by food prices. The Reserve Bank of India (RBI) has maintained its key policy rate at 6.5%, signalling a hawkish stance focused on curbing inflation towards the target of 4%. As for the fiscal year 2025 GDP forecast, Fitch predicts a growth rate of 7%, reflecting optimism and resilience in India's economic trajectory amidst inflationary pressures.

As per Fitch Ratings economic analysis, inflation may gradually decrease to 4% by the end of the calendar year, assuming a subsiding volatility in food prices. The agency now foresees the RBI implementing rate cuts only in the second half of 2024, reducing rates by 50 basis points, down from the previously estimated 75 basis points, in light of the strengthened growth outlook.