India Ratings raises India’s GDP growth outlook for FY25 to 7.5%

The revised growth projection by India Ratings is higher than most other estimates including the Reserve Bank of India (7.2%), Economic Survey (6.5 to 7%), the International Monetary Fund (7per cent) and the Asian Development Bank (7%).

New Delhi: India Ratings and Research (Ind-Ra) on Wednesday revised upward India’s economic growth projection for the current financial year to 7.5 per cent from its earlier estimate of 7.1per cent citing uptick in consumption demand led by continued focus on the government capital expenditure in the Union Budget and deleveraged balance sheets of banks and corporates. 

The revised growth projection by India Ratings is higher than most other estimates including the Reserve Bank of India (7.2per cent), Economic Survey (6.5 to 7per cent), the International Monetary Fund (7per cent) and the Asian Development Bank (7per cent).

The ongoing growth momentum led by government capex, deleveraged balance sheets of corporates/banks, and incipient private corporate capex cycle has now found support from the union government budget, India Ratings and Research said in a note.  

The budget promises to bolster agricultural/rural spending, improve credit delivery to MSMEs and incentivise employment creation in the economy.

Ind-Ra believes these measures would help in broad basing the consumption demand which if not addressed can constrain the ongoing growth momentum.

According to the ratings agency, growth in private final consumption expenditure is likely to accelerate from 4 per cent in 2023-24 to 7.4 per cent in the current financial year, the highest in three years.

“The consumption demand is highly skewed, as it is driven by the goods and services largely consumed by the households belonging to the upper income bracket. However, an above-normal monsoon coupled with the measures announced in the union budget FY25 is expected to correct it, by boosting the demand of goods and services consumed by the rural and households belonging to the lower income bracket,” Ind-Ra said.

Although food inflation continues to be a risk, the expectation of retail inflation in FY25 averaging lower than in FY24 will support the real wage growth, it added.

Ind-Ra expects the average retail and wholesale inflation to come in at 4.5 per cent and 3.2 per cent, respectively, in the current financial year.

One of the key reasons for the retail inflation not coming closer to the RBI’s target of 4 per cent on a durable basis is the elevated food inflation. The elevated inflation in some food items such as cereals and pulses combined with the flare-up in select vegetables prices such tomato, onion and potato has been a source of discomfort for the RBI in managing inflation.

The RBI’s guidance with respect to retail inflation and its trajectory during the four quarters of FY25 suggest that retail inflation except in the second quarter will be higher than the target 4 per cent.

On private capital expenditure, the ratings agency said, “Private sector’s greenfield capex barring few sectors has remained down and out now for several years. Some green shoots, though, are visible.” 

A revival in the private sector capex may reduce the capex spending of the union government, but that is still some distance away, it said.