Strong domestic factors prompted S&P Global Ratings to up India’s growth forecast by 40 basis points for the current fiscal (2023-24) while cutting the projection by 50 basis points for the next fiscal (2024-25). It does not expect the rate cycle to turn for some time.

“We have revised up our projection for India’s GDP growth for fiscal 2024 (ending in March 2024) to 6.4 per cent, from 6 per cent, as robust domestic momentum seems to have offset headwinds from high food inflation and weak exports,” said S&P Global Ratings chief economist for Asia-Pacific Louis Kuijs.

This projection is in line with many agencies, though lower than the government and RBI projection of 6.5 per cent. The agency also noted that GDP exceeded the 2019 level by 15.5 per cent in India in the first half of the current fiscal. Also, fixed investment has recovered considerably more than private consumer spending.

Meanwhile, the agency has cut the projection for next fiscal. “We expect growth to slow in the second half of the fiscal year amid subdued global growth, a higher base, and the lagged impact of rate hikes. As a result, we have lowered our outlook for growth in fiscal 2025 to 6.4 per cent, from 6.9 per cent,” added Kuijs. This is also lower than RBI’s projection of 6.6 per cent.

Talking about inflation, the agency noted the surge during the second quarter (July-September), but they are unlikely to have an impact on overall inflation. “In India, there was a transitory spike in food inflation in the July-September quarter, but it appears to have had little effect on underlying inflation dynamics. Still, headline inflation remains above the Reserve Bank of India’s (RBI) target of 4 per cent, suggesting it will be a while before the rate cycle turns,” Kuijs said.

Retail inflation based on the Consumer Price Index (CPI) after touching a high of 7.4 per cent in July, slipped to 4.9 per cent in October. In its October statement, the Monetary Policy Committee had said that the near-term inflation outlook is expected to improve on the back of vegetable price correction and the recent reduction in LPG prices. The future trajectory will be conditioned by a number of factors like lower area sown under pulses, dip in reservoir levels, El Niño conditions and volatile global energy and food prices.

Along with these, based on the performance of services and manufacturing, MPC projected CPI inflation at 5.4 per cent for 2023-24, with Q2 at 6.4 per cent, Q3 at 5.6 per cent, and Q4 at 5.2 per cent, with risks evenly balanced. CPI inflation for Q1 2024-25 is projected at 5.2 per cent. Now, the MPC is meeting next month, and considering the current trend in inflation, it is expected to keep the policy rate unchanged for the fifth successive time.

Growth in Asia-Pacific

S&P Global expects overall growth in the Asia-Pacific region to be on track. “Overall, growth this year and next is on track to be the strongest in emerging market economies with solid domestic demand: India, Indonesia, Malaysia, and the Philippines,” said Kuijs in the report published by S&P Global Ratings today, titled ‘Economic Outlook Asia-Pacific Q1 2024: Emerging Markets Lead The Way.’

On China, the report said that it is coping while its neighbors step up. A property downturn is still a pain point for the Chinese economy, but growth momentum has slightly improved because of policy support. Outside of China, economies have generally held up well. Asia-Pacific as a whole continues to grow despite meagre support from external sources.

Emerging market economies with solid domestic demand are posting the strongest growth. “China’s outlook has improved, but obstacles remain. With the property sector struggling and confidence subdued, the growth outlook remains moderate,” said S&P Global Ratings chief economist for Asia-Pacific Louis Kuijs.

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