The economic outlook announced by the global rating agency kept India’s growth forecast unchanged at 6% for this fiscal, projecting a sharp bounce back to 6.9% in FY25 and FY26.
Indian economy grew at 7.2% in 2022-23.
“In India, growth in the March quarter outperformed our expectations, and Statistics India revised up whole-year GDP growth in fiscal 2023 (year ending March 30) to 7.2% from the earlier 7.0%, confirming a strong recovery from COVID-19,” S&P Global Ratings noted in its outlook.
“We see the fastest growth at about 6% in India, Vietnam, and the Philippines. Growth in the region ex China should pick up to 4.4% in 2024 amid easier monetary conditions and somewhat better global growth,” it further said, highlighting strong investment momentum and strong domestic resilience.
On the inflation front, S&P projected that softer crude prices and tempering of demand are likely to bring down fuel and core inflation. It projected 5% inflation in FY24, on the assumption of a normal monsoon, further declining to 4.5% over the next two years.“The inflation and rate hike cycles have peaked, in our opinion. But we expect the Reserve Bank of India to cut rates only in early 2024, as it wants to see consumer inflation moving to 4%–the centre of its target range,” the report stated.S&P Global Ratings expects rates to fall to 6.25% by the end of this year and decline another percentage point over next year.
The rates are not expected to fall below 5% in the medium term.
Reserve Bank of India held the policy rate at 6.5% for the second consecutive meeting in June. Economists expect the monetary policy committee to hold rates in its August meeting. The policy rate has been raised by 2.5 percentage points from May 2022 last year.
S&P Global projected China’s growth to slow down to 5.2% from the 5.5% projected earlier. It also reduced the growth estimate for Asia Pacific by 0.1 percentage points.