India Ratings and Research (Ind-Ra) recently revised up its gross domestic product (GDP) growth estimate for India for fiscal 2024-25 (FY25) to 7.1 per cent from 6.5 per cent earlier.

This is marginally higher than the Reserve Bank of India’s (RBI) forecast of 7 per cent.

On a quarterly basis, Ind-Ra’s forecast is higher than the RBI’s forecast for the first quarter (Q1) and Q4 of FY25 and lower for Q2 and Q3, the domestic rating agency said in a release.

The ongoing growth momentum is getting strong support from the sustained government capital expenditure (capex), deleveraged balance sheets of corporations and the banking sector and the incipient private corporate capex cycle.

However, there are constraints as well, Ind-Ra notes. Consumption demand is still not broad-based and exports are facing global headwinds.

Ind-Ra expects the private final consumption expenditure (PFCE) to grow by 7 per cent year on year (YoY) in FY25; it was 3 per cent in FY24.

Current consumption demand is highly skewed, being driven by the goods and services largely consumed by households belonging to the upper income bracket.

Rural consumption has been weak. Ind-Ra believes the sustained real wage growth of households belonging to the lower income bracket is an imperative for a sustainable and broad-based recovery in consumption demand, it noted.

Ind-Ra expects goods and services exports to grow by 6.6 per cent YoY and such imports to grow by 8.8 per cent YoY in FY25 as against 1.5 per cent and 10.9 per cent respectively in FY24.

However, the erosion of household purchasing power due to high inflation coupled with tighter monetary policy in advanced economies still weigh on the country’s exports, the rating agency observed. 

Other developments affecting India’s exports are the use of restrictive trade policies aimed at localising production by the United States and the European Union, and the volatile geopolitical situation.

Ind-Ra expects the average retail and wholesale inflation to come in at 4.6 per cent and 2.9 per cent respectively in FY25. One of the key reasons for elevated retail inflation has been elevated food inflation.

Fibre2Fashion News Desk (DS)

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