Fitch raises India's growth forecast to 7.2 per cent for the current fiscal year

Fitch Ratings increased its growth estimate for India's current fiscal year by 7.2 per cent on Tuesday, from its March estimate of 7 per cent. According to Fitch's analysis of the global economic outlook, the upward revision is indicative of both a recovery in consumer spending and an increase in investment.

Strong consumer confidence

According to Fitch's most recent research, there has been a notable improvement in consumer confidence, which has led to increased expenditure and economic development. The organisation observed that data from purchasing managers' surveys indicates that the economy was still expanding at the beginning of the current fiscal year.

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"We expect the Indian economy to expand by a strong 7.2 per cent in FY24/25 (an upward revision of 0.2 pp from the March GEO)," Fitch said.

Rural demand and moderating inflation

Similar growth projections of 7.2 per cent were made by the Reserve Bank of India (RBI) for the current fiscal year, which it attributed to rising rural demand and lowering inflation. The RBI's and Fitch's estimates agree, which gives rise to more hope for India's economic future.

Future growth projections

Fitch projects growth rates of 6.2 per cent and 6.5 per cent, respectively, for the fiscal years 2026–2027. The analysis made clear that although investment will grow, it will do so more slowly than in previous quarters. Investment and consumer spending will be the main engines of growth.

Fitch stated, "We expect growth in later years to slow and approach our medium-term trend estimate," suggesting a more subdued but continuous economic expansion going forward.

Monsoon season and inflation outlook

Fitch stated that while recent heatwaves represent a possible concern, regular monsoon conditions are projected to promote growth and stabilize inflation. Inflation is expected by the agency to average approximately 4.3 per cent in 2025 and 2026, and to drop to 4.5 per cent by the end of 2024.

In addition, Fitch projects that the RBI would lower policy interest rates by 25 basis points to 6.25 per cent this year, potentially boosting the economy even further.

The economy of India expanded by 7.8 per cent in the March quarter of the previous fiscal year (2023–24) and by 8.2 per cent overall. For the foreseeable future, this strong growth tendency is anticipated to persist, perhaps at a somewhat slower rate.

(With inputs from Agencies)