UBS has upped India’s GDP growth forecast by 10 basis points (100 basis points mean 1 percentage point) to 6.3 per cent. Also, it has increased India’s FY25 GDP growth forecast upwards by 20 basis points to 6.2 per cent. However, it feels that macro risks and next year’s general poll will be key factors to watch.

“We expect growth momentum in the near term to get support from higher household spending during the ongoing festive season, buoyant credit growth, and reallocation of government spending towards pro-rural pro-social schemes ahead of a tight election calendar,” Tanvee Gupta Jain, Chief India Economist at UBS Securities said.

UBS’s forecast is the same as that of Fitch Ratings, World Bank, Organization for Economic Cooperation and Development (OECD), and ADB, and it is higher than S&P Global Ratings’ estimate of 6 per cent. However, it is lower than the estimates of the government and the Reserve Bank of India, which have pegged the country’s growth at 6.5 per cent.

Meanwhile, when talking about growth projections for the coming years, Jain sees India‘s growth settling towards the long-run average of 6.2 per cent and 6.5 per cent in FY26 and FY27. We calculated Asian GDP growth betas in response to a 1 percentage point change in a weighted aggregate of US and EU real GDP growth. High exports-to-GDP economies mostly have high betas, while the betas for India and Indonesia are low, below 0.5. We believe India is likely to be one of the less affected economies due to the spillover effects of a global slowdown, even though it is not immune,” she said.

On potential growth, she expected India to be able to maintain higher potential growth of 6.0-6.5 per cent in the medium term (against earlier expectations of 5.75-6.25%). “This improvement is owing to significant digitalisation adoption, an easing of financial sector weaknesses, and the government’s reform agenda to help support India’s integration into global value chains. However, challenges remain, including the providing of productive jobs to the rising working-age population, a less friendly external environment, and the automation overhang,” she said.

The agency expects consumption growth to see a gradual normalisation on softening in corporate wages, flattening of personal loan growth, peaking of government’s welfare spending (post elections), and lagged impact of monetary tightening on households’ disposable income. The pick-up in capex spending will likely become more broad-based. While public capex will likely stabilise on stretched government finances, we expect private corporate capex and residential housing demand to continue to improve. Lastly, exports could see a marginal improvement but will likely remain tepid and be dependent on global growth uncertainty.

Now all eyes are on next year’s general election with a big bet on the continuity of the present regime. “We do not predict the election outcome and note opinion/exit polls have been wrong in the past. Recent early opinion polls for the general election (due in April/May 2024) suggest political continuity, with the BJP-led NDA projected to win 300+ seats and the opposition alliance (INDIA) 180+ seats. Political stability could ensure the reform agenda continues, with a focus on India gaining in China +1 supply chain shifts,” Jain said.