India Ratings Raises FY25 GDP Growth Forecast To 7.1% From 6.5%: India Ratings and Research recently revised their GDP growth forecast for 2024 – 25, projecting a robust growth rate of 7.1%, up from the previous estimate of 6.5%. This upward revision is attributed to strong government expenditure and improved corporate and banking sector balance sheets. However, challenges persist as consumption demand and exports continue to pose constraints to growth.
Factors Behind the GDP Growth Upgrade
India Ratings and Research attribute the upgraded GDP growth forecast to several key factors. These include sustained government expenditure, which has provided strong support for growth momentum, as well as improved corporate and banking sector balance sheets. Additionally, the emergence of a budding private corporate capex cycle contributes to the positive outlook for India’s economic growth.
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Consumption Demand Dynamics
The agency highlights the uneven nature of current consumption demand, with a significant skew towards upper-income brackets, while rural consumption remains weak. Despite this, there is anticipation of a notable surge in private final consumption expenditure, expected to reach 7% in FY25, up from 3% in FY24. This potential increase could mark a three-year high in private consumption spending.
Capex Outlook
While private sector activity has faced subdued conditions in recent years, India Ratings identifies signs of a new investment cycle emerging. This is evidenced by increased project loans sanctioned by lenders, indicating a potential uptick in private-sector capital expenditure shortly.
Inflation and Monetary Policy
India Ratings forecasts a moderation in headline inflation for FY25 but stresses the need for continued vigilance from the Reserve Bank of India (RBI). Despite the expected moderation, monitoring inflationary pressures remains crucial for maintaining price stability and supporting economic growth.
Fiscal Deficit and Trade Dynamics
India Ratings acknowledges the challenging yet achievable 5.1% of GDP fiscal deficit target for the year. They anticipate goods imports to outpace exports, leading to a widening goods trade deficit. However, factors such as remittances and software exports are expected to help keep the current account deficit in check at $46.3 billion or 1.2% of GDP.
Conclusion
India Ratings and Research’s upward revision of the GDP growth forecast for FY25 reflects optimism fueled by various positive factors, including government expenditure and improved corporate and banking sector health. However, challenges such as skewed consumption demand and global economic headwinds remain pertinent. Addressing these constraints will be crucial for sustaining and enhancing India’s economic growth trajectory in the coming years.
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