S&P Global Ratings Maintains India's FY25 GDP Growth Forecast
S&P Global Ratings has projected India's GDP growth at 6.8% for FY25, maintaining its earlier forecast despite facing challenges in the domestic economy. The ratings agency emphasized that urban consumption, along with a steady services sector, ongoing infrastructure investments, and improving economic fundamentals, will be the key drivers behind the country's growth in the upcoming fiscal year.

S&P’s growth forecast reflects the strong resilience of urban demand, even though the fiscal impulse—defined as the government’s expenditure and fiscal policy measures—has been slower, tempering the pace of recovery in urban demand. Despite the moderation in growth in Q2 FY25 (which registered a lower-than-expected 5.4% growth rate), S&P remains optimistic about India’s growth trajectory. The agency has slightly revised its projections for the following years, expecting 6.7% growth in FY26 and 6.8% growth in FY27, reducing its estimates by 20 basis points compared to previous projections.

Key Growth Drivers: Urban Consumption and Infrastructure Investments
Urban consumption continues to play a significant role in driving economic growth. Services sector performance remains strong, and infrastructure investments are expected to continue fueling demand in both urban and rural areas. S&P highlighted that key structural reforms, including improvements in labour force participation, technology adoption, and infrastructure, will continue supporting growth in FY25 and beyond. The public and household balance sheets are also expected to remain robust, which will help sustain growth momentum through consumer spending and investment.

Concerns: Fiscal Impulse and Slower Growth in Q2 FY25
Despite these positives, S&P cautioned that the slower fiscal impulse would likely temper urban demand. This means that while infrastructure projects and consumption in urban areas will remain strong, fiscal policies, particularly in terms of government expenditure, may not be as supportive as expected, impacting overall demand. Moreover, the weaker-than-expected growth rate in Q2 FY25 (5.4%) has contributed to the slight downward revision of the growth forecast for subsequent years.

Comparing Growth Forecasts with Other Agencies
While S&P remains optimistic, other agencies have revised their growth forecasts for India downwards:

• UBS has lowered its FY25 GDP growth forecast for India to 6.3% from the earlier estimate of 6.7%, anticipating a cyclical recovery in the second half of the fiscal year, driven by festival demand and improved rural sentiment.
• State Bank of India (SBI) predicts a growth range of 6% to 6.5%, citing sluggish government expenditure as a primary concern.
• Elara Securities has reduced its growth forecast by 30 basis points to 6.5%, highlighting concerns over a lack of significant demand recovery in the latter half of FY25 and the potential shortfalls in capital expenditure.

Monetary Policy Outlook
S&P anticipates a modest easing of monetary policy by the Reserve Bank of India (RBI), as inflationary pressures subside. This is expected to provide some relief to businesses and consumers, particularly in terms of lower borrowing costs. The RBI's monetary policy stance will play a crucial role in supporting India’s growth outlook amid domestic challenges and global uncertainties.

Conclusion
Despite a slowdown in Q2 FY25 and other downward growth revisions by some financial agencies, S&P remains confident that India's economy will achieve 6.8% growth in FY25. The forecast highlights the resilience of the urban consumption sector, steady growth in services, and strong infrastructure investment as key contributors to the positive outlook. The government’s economic policies and the expected monetary easing by the RBI will further support India’s long-term growth trajectory, positioning it as a robust economy in FY25 and beyond.

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