Fitch Upgrades India's Growth Forecast to 7.2% for FY25 Amid Consumer Spending Surge

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Fitch Upgrades India's Growth Forecast to 7.2% for FY25 Amid Consumer Spending Surge

Team Finance Saathi

19/Jun/2024

Key Points:

Fitch Ratings upgrades India's growth forecast for FY25 to 7.2%, up from 7%.
Recovery in consumer spending and increased investment drive the upward revision.
RBI's projection aligns with Fitch's, anticipating robust growth fueled by rural demand and moderating inflation.

In a significant revision, Fitch Ratings has raised India's economic growth forecast for the fiscal year 2024-25 to 7.2%, up from the previously projected 7%. This update comes as a result of a notable recovery in consumer spending and a sustained increase in investment activities. The revised outlook aligns closely with the Reserve Bank of India's (RBI) latest projection, which also anticipates a 7.2% expansion for the current fiscal year, attributing this optimism to improving rural demand and easing inflation pressures.

Consumer Spending and Investment:

Consumer spending has shown remarkable recovery, bolstered by elevated consumer confidence. According to Fitch, purchasing managers' survey data indicate continued growth at the onset of the current financial year, signaling a strong economic momentum. Increased consumer spending is a critical driver of this positive outlook, reflecting broader economic recovery trends as people regain confidence in financial stability and future economic prospects.

Investment in the Indian economy is expected to continue its upward trajectory, although at a more moderate pace compared to recent quarters. The sustained rise in investment activities, especially in infrastructure and industrial sectors, underpins the robust growth forecast. However, Fitch notes that the pace of investment growth will likely decelerate, aligning with medium-term trends.

Rural Demand and Inflation:

The RBI's growth projections emphasize the importance of improving rural demand. As rural areas recover from the impacts of the pandemic and benefit from government support measures, consumer spending in these regions is anticipated to rise. This recovery is crucial for overall economic growth, given the significant portion of India's population residing in rural areas.

Inflation, a critical economic parameter, is expected to moderate. Fitch projects inflation to decline to 4.5% by the end of 2024 and average 4.3% in 2025 and 2026. A normal monsoon season, essential for agricultural productivity, should support growth and help stabilize inflation rates. Despite potential risks posed by recent heatwaves, the forecast remains optimistic about inflation control.

Future Projections:

Looking ahead to FY26 and FY27, Fitch projects India's growth rates to be 6.5% and 6.2%, respectively. While these figures represent a slowdown compared to the current fiscal year's robust growth, they are consistent with medium-term trends. The anticipated slowdown reflects a more stable and mature phase of economic expansion, driven by continued consumer spending and steady investment growth.

Fitch also predicts a policy interest rate cut by the RBI, reducing rates by 25 basis points to 6.25%. This move is expected to further stimulate economic activities by making borrowing cheaper, thereby encouraging investments and spending.

Economic Performance and Data:

India's economic performance in the previous fiscal year (FY24) was strong, with an 8.2% growth rate and a 7.8% expansion in the March quarter. These figures highlight the economy's resilience and capacity for rapid recovery post-pandemic. The substantial growth in the previous fiscal year sets a robust foundation for the current and future fiscal years.

Conclusion:

Fitch Ratings' upward revision of India's growth forecast to 7.2% for FY25 underscores the country's economic resilience and recovery momentum. The alignment with the RBI's projections further reinforces confidence in India's economic trajectory. Key drivers, such as consumer spending recovery, increased investment, and improving rural demand, paint an optimistic picture of sustained economic growth. With moderated inflation and supportive monetary policies, India is well-positioned to maintain robust economic performance in the coming years.

In summary, the positive outlook for India's economy, supported by strong consumer spending and investment trends, presents a promising scenario for stakeholders and investors. As the nation navigates through potential challenges, the concerted efforts towards maintaining economic stability and growth are likely to yield favorable outcomes, reinforcing India's position as a significant player in the global economy.

Also Read : Surge in Rent Prices Across Major Indian Cities Reaches Up to 64% Since 2019

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Fitch Upgrades India's Growth Forecast to 7.2% for FY25 Amid Consumer Spending Surge

Consumer Spending and Investment:

Rural Demand and Inflation:

Future Projections:

Economic Performance and Data:

Conclusion:

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