Fitch Ratings, renowned for its economic projections, has recently upgraded its growth forecast for the Indian economy in the fiscal year of 2024. With strong growth momentum observed in the first quarter and a promising near-term outlook, Fitch now anticipates a growth rate of 6.3%, surpassing its previous estimate of 6%. This optimistic revision highlights India’s position as one of the fastest-growing economies globally.
Fitch acknowledged the favorable conditions supporting India’s economic expansion, including the continued high bank credit growth and ongoing investments in infrastructure development. Furthermore, it emphasized that more investments are expected in this sector, further bolstering economic prospects.
In alignment with Fitch’s revised forecast, the Reserve Bank of India (RBI) also projects a growth rate of 6.5% for the fiscal year 2024. However, Fitch cautioned that India may experience some repercussions from the slowdown in global trade. Additionally, the full impact of the RBI’s 250 basis points of monetary tightening is yet to be fully realized.
Despite these potential challenges, Fitch expressed confidence in the Indian government’s efforts to enhance capital expenditure, the moderation of commodity prices, and the robust growth of credit, which are expected to support investment activities. As inflation gradually recedes, consumers are anticipated to benefit over time, and Fitch reported that households are now displaying increased optimism regarding future earnings and employment prospects.
While inflation has shown signs of easing in recent months, Fitch raised concerns about the monsoon outlook and the potential impact of El Nino in the latter half of the year. However, it should be noted that India’s retail inflation for May stood at a manageable 4.25%, marking the third consecutive month within the RBI’s target range of 2%-6%.
Considering the expectation of a further moderation in growth and easing inflationary pressures, Fitch predicts that the RBI will temporarily halt its rate cycle before implementing rate cuts in early 2024. This outlook represents a departure from Fitch’s previous projection, which anticipated an additional 25 basis points increase to reach 6.75%.
In conclusion, Fitch Ratings’ revised forecast of 6.3% growth for the Indian economy in the fiscal year 2024 underscores the country’s strong growth trajectory. Despite potential challenges stemming from global trade slowdown and the impact of monetary tightening, India’s proactive measures in capital expenditure, along with favorable factors such as moderate commodity prices and robust credit growth, are expected to sustain investment levels. The gradual easing of inflation is set to benefit consumers, while the RBI is projected to adopt a pause in its rate cycle before implementing rate cuts early next year.