Due to robust domestic demand and ongoing increases in business and consumer confidence, rating agency Fitch increased its estimate of India's economic growth for the current fiscal year and the following one on Thursday. However, it moderated its opinion on rate cuts.
In a research, Fitch stated that it anticipates the Indian economy to maintain its robust growth, projecting a 7.0% real gross domestic product gain in the upcoming April fiscal year, a 50 basis point (bps) increase from its December estimate.
In the last three months of 2023, India's GDP expanded by 8.4%, the fastest rate in eighteen months, mostly due to robust manufacturing and building activity.
"With GDP growth having exceeded 8 per cent for three consecutive quarters, we expect an easing in growth momentum in the final quarter of the current fiscal year, implying an estimate of 7.8 per cent for growth in FY23/24," Fitch said.
The rating agency has one of the most optimistic forecasts ever for fiscal 2024, which ends this month, and it is higher than the revised 7.6% estimate provided by the Indian government. Shaktikanta Das, the head of the Reserve Bank of India, has stated that growth might be quite close to 8%.
"Domestic demand, especially investment, will be the main driver of growth, amid sustained levels of business and consumer confidence," Fitch said. "Our forecasts imply that growth in the short term will outpace the economy's estimated potential, and that the pace of growth of activity will then moderate towards trend in FY25."
Assuming that the recent volatility in food prices would abate, Fitch projects retail inflation to decline steadily to 4% by the end of the current calendar year.
Because of the improved GDP outlook, it now anticipates that the Reserve Bank of India would only drop interest rates in the second half of the year, downgrading its projection from 75 basis points in December to 50 basis points.
For the past six meetings, the RBI has maintained the repo rate at 6.50 percent and reaffirmed its commitment to achieving the 4% inflation objective in a sustainable manner.
