Fitch, the rating agency, has upgraded India's growth forecast for the current and next financial year due to strong demand within the country and growing confidence levels among businesses and consumers. Fitch now expects India's economy to grow by 7 percent in the financial year starting in April, which is 0.5 percent higher than its previous prediction in December.
This upgrade follows India's impressive economic expansion of 8.4 percent in Q3FY24, the fastest in 18 months, driven mainly by robust manufacturing and construction activities. Fitch suggests that while GDP growth exceeded 8 percent for three consecutive quarters, the momentum might ease slightly in the final quarter of the current fiscal year, estimating growth to be around 7.8 percent for the whole year.
Fitch's forecast for the current fiscal year is higher than the government's estimate of 7.6 percent and indicates optimism about India's economic prospects. RBI Governor Shaktikanta Das also hinted at growth close to 8 percent.
Fitch believes that domestic demand, particularly investments, will be the main driver of growth, supported by high levels of confidence among businesses and consumers. While growth is expected to be higher than normal in the short term, Fitch anticipates a slowdown towards a more sustainable pace in the fiscal year starting April 2025.
Regarding inflation, Fitch expects it to gradually decrease to 4 percent by the end of this year, assuming that recent fluctuations in food prices will stabilize. Fitch now suggests that the Reserve Bank of India will only cut interest rates in the second half of the year, reducing its estimate to 0.5 percent from 0.75 percent previously, due to the stronger growth outlook.
The RBI has maintained the repo rate unchanged at 6.50 percent for the past six meetings, emphasizing its commitment to achieving a sustainable 4 percent inflation target.
