New Delhi [India] March 19 (ANI): Fitch Ratings has revised India’s growth rate for FY25-26 to 6.5 per cent and to 6.3 per cent for FY26-27 in its March Edition of the Global Economic Outlook because of the US-imposed global trade war.
However, the report adds that India is somehow insulated because of its self-sufficiency.
“We expect overall GDP growth of 6.5 per cent in FY25-26 and a slight slowdown in growth in FY26-27, to 6.3 per cent. These forecasts are little changed from the December GEO. More aggressive-than-expected US trade policies are an important risk to our forecast, though India is somewhat insulated given its low reliance on external demand.”
GDP growth of India recovered in Q4FY25 to 6.2 per cent from 5.4 per cent in Q3FY25 because of increase private and public spending including capital spends.
The contribution of agriculture also adds significantly to India’s growth; it has increased because of above-average monsoon rains which boosted Kharif crop production.
Fitch says “For 1Q25, we expect a further pick-up in GDP growth, which would be consistent with GDP growth of 6.3 per cent for the full financial year ending 31 March 2025 (FY24-25).”
The report adds that business confidence in India remains high and lending surveys suggest continued double-digit growth in bank lending to the private sector.
Additionally, the Union Budget allocation of continued high levels of public capital expenditure is broadly neutral for growth.
Fitch believes that because of these factors along with a reduction in the capital cost because of the rate cut by RBI there will be a pick-up in capital spending for FY25-26 and FY26-27.
In recent months, consumer confidence has edged down, and vehicle sales have eased significantly. Lower inflation figures will boost real incomes, and labour market indicators from government data and PMI survey data point to a steady employment growth.
Moreover, the increased tax-free income and revised tax brackets, will raise post-tax incomes in the hand of consumers will support higher spending and growth.
Net exports have supported GDP growth this year due to a combination of strong export growth and falling imports. Fitch expects this to normalise and net exports’ growth contribution will be broadly neutral over FY25-26 and FY26-27.
Consumer price inflation fell in February to 3.6 per cent from 4.3 per cent in January as food price inflation fell back further from the recent highs. Food price dynamics in the coming months will enable a gradual decline in the headline inflation rate to 4.0 per cent by the year-end.
Fitch expects there will be a mild increase in inflation to 4.3 per cent by December 2026 as the RBI has started cutting the rates. Fitch expects two more cuts in the policy rate this calendar year, so that the policy rate will be 5.75 per cent by December 2025 from 6.25 per cent now after a 25 basis point cut in February policy. (ANI)
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