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Informist, Wednesday, Jul 31, 2024

 

NEW DELHI – India Ratings and Research has raised its India GDP growth forecast for 2024-25 (Apr-Mar) to 7.5% from 7.1%. The revision comes after measures were announced in the Union Budget to help increase consumption demand in the country, which has been tepid and, if not addressed, could constrain the growth momentum, India Ratings said today.

 

"The ongoing growth momentum led by government capex (capital expenditure), deleveraged balance sheets of corporates/banks, and incipient private corporate capex cycle has now found support from the union government budget," India Ratings said. "The budget promises to bolster agricultural/rural spending, improve credit delivery to MSMEs and incentivise employment creation in the economy."

 

The rating agency's growth forecast for 2024-25 is higher than the Reserve Bank of India's projection of 7.2%, and the Economic Survey's estimate of 6.5-7.0%. The Indian economy grew 8.2% in 2023-24.

 

India Ratings expects the private final consumption expenditure growth to rise to a three-year high of 7.4% this year from 4.0% in 2023-24. The steps announced in the Budget, along with above-normal monsoon rains, are expected to correct the "highly skewed" consumption demand, the rating agency said. Consumption demand right now is driven by households in the upper income bracket, and the Budget measures may boost demand for goods and services consumed by households in the lower income bracket and in rural India, it said.

 

"Although food inflation continues to be a risk, the expectation of retail inflation in 2024-25 averaging lower than in FY24 will support the real wage growth," India Ratings said.

 

Growth will continue to be led by government investment this year, even as the full Budget left the capital expenditure target for 2024-25 unchanged from the Interim Budget at 11.11 trln rupees, the rating agency said. It expects the gross fixed capital formation, an indicator of investments in the economy, to grow 8.9% in 2024-25 as compared to the growth of 9.0% last year.

 

"A revival in the private sector capex may reduce the capex spending of the union government, but that is still some distance away," India Ratings said. Private-sector capital investment is visible in crude oil, base metals, power, telecom, cement, chemicals, textiles, health care, and logistics so far, it said.

 

On the supply side, the services sector is showing steady growth with India Ratings projecting it to grow 8.0% this year, compared to 7.6% growth in 2023-24.

 

India Ratings sees headline inflation averaging 4.5% this year, against 5.4% in 2023-24. The RBI, too, projects 4.5% CPI inflation this year. "The RBI's guidance with respect to retail inflation and its trajectory during the four quarters of 2024-25 suggest that retail inflation except 2Q (Jul-Sep) will be higher than the target 4%," the rating agency said. "Therefore, India Ratings believes the RBI will remain cautious and watchful and is unlikely to change either the stance or the policy rate in 2024-25."  End

 

Reported by Shubham Rana

Edited by Rajeev Pai

 

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