After expanding by 7.6 per cent in the current fiscal, the country’s real gross domestic product (GDP) growth is likely to decelerate to 6.8 per cent in the fiscal 2025 as higher interest rates and lower fiscal impulse will temper domestic demand, Crisil Ratings said.
The economic growth in the next fiscal will also moderate due to normalization of the net tax impact on GDP seen in FY2024 and as uneven growth in key trade partners will restrict healthy export recovery.
Despite this, India will retain its position as the fastest-growing large economy, the rating agency said.
“After a better-than-expected 7.6 per cent this fiscal, India’s real GDP growth will likely moderate to 6.8 per cent in fiscal 2025,” Crisil said in a report.
The Reserve Bank of India (RBI) has projected the real GDP growth for 2024-25 at 7 per cent.
The recent data from the National Statistical Office (NSO) showed that the country’s economy is expected to grow at 7.6 per cent in 2023-24.
Crisil said the transmission of the rate hikes effected by the Monetary Policy Committee (MPC) of the RBI between May 2022 and February 2023 still continues and is likely to weigh on demand next fiscal. The RBI raised the repo rate – the key policy rate – by 250 basis points (bps)pv between May 2022 and February 2023. One basis point is one-hundredth of a percentage point.
On the other hand, regulatory actions to tame unsecured lending will have a bearing on credit growth. In November last year, the RBI increased the risk weights on the exposure of banks towards consumer credit, credit card receivables and non-banking finance companies (NBFCs) by 25 per cent up to 150 per cent.
“The fiscal impulse will be lesser because of the need to reduce the fiscal deficit to 5.1 per cent of GDP next fiscal according to the glide path presaged. However, the nature of government spending will provide some support to the investment cycle and rural incomes,” the rating agency said.
The report further said that inflation softened this fiscal (FY2024) due to easing input costs and slower domestic demand, but elevated food inflation curbed a bigger decline in the headline number.
The rating agency expects the softening in inflation to continue next fiscal on the back of healthier agriculture output that tames food inflation, and benign oil and commodity prices.
