S&P Global on Tuesday retained India’s economic growth, measured in terms of change in GDP (Gross Domestic Products) at 6.8 per cent. It expects RBI’s Monetary Policy Committee (MPC) to cut policy interest rate next month.
In its report, titled ‘Economic Outlook Asia-Pacific Q4 2024’, the agency noted that GDP growth moderated in the June quarter as high interest rates temper urban demand. However, this was “in line with our projection of 6.8 per cent GDP for the full fiscal year 2024-2025.”
Further, it said that the July budget confirmed that the government remains committed to fiscal consolidation and to keeping the focus of public expenditure on infrastructure. The agency has projected growth at 6.9 per cent for fiscal year 2025-26 and 7 per cent for fiscal years 2026-27 and 2027-28.
The agency’s forecast for current fiscal is at par with OECD’s projection of 6.8 per cent but lower than World Bank, IMF and ADB (all at 7 per cent).
Moody’s, Fitch and RBI have projected growth rate much higher at 7.2 per cent, although, government’s projection is slightly lower.
In its monthly economic review, released last month, the Finance Ministry said, “As of now, the projection of real GDP growth of 6.5-7.0 per cent for FY25, made in the Economic Survey for 2023-24, seems appropriate.”
Inflation
Meanwhile, S&P Global noted that though inflation has receded in Asia-Pacific region, but not in Australia and India. However, it emphasised that in India, solid growth allows the RBI to focus on bringing inflation in line with its target.
“The RBI considers food inflation a hurdle for rate cuts. It reckons that unless there is a lasting and meaningful decline in the rate at which food prices are increasing it will be tough to maintain headline inflation at 4 per cent,” it said.
Earlier this month, data released by Government’s Statistics Ministry showed that rise in vegetable and fruitprices pushed the retailinflation rate slightly higher at 3.7 per cent in August.
The rate was 3.6 per cent in July. Despite the rise, the retail inflation, based on Consumer Price Index (CPI), is second lowest in the last 59 months. Also, this is the second successive month of sub-4 per cent retail inflation rate.
But the expectation is that the rate may go up further in September. Keeping this in mind, the October review meeting of the Monetary Policy Committee (MPC) is unlikely to make any change in policy review in October.
However, S&P Global has a different take. Our outlook remains unchanged. We expect the RBI to begin cutting rates in October at the earliest and have penciled in two rate cuts this fiscal year (year ending March 2025).” It may be noted that the Committee under the Chairmanship of RBI Governor Shaktikanta Das is scheduled to meet during October 7 to 9, 2024.
This would be last meeting of present Committee as terms of three Government nominees set to end with this meeting. It is also expected that new government nominees will be announced on the eve of the said meeting.
