Fitch Ratings has revised India's GDP growth forecast for FY24 and FY25 upwards, indicating a robust economic expansion amidst global shifts, while trimming China's forecast due to its ongoing property crisis.

Fitch Ratings, a prominent global credit rating agency, has adjusted its projections for India's gross domestic product (GDP) growth, foreseeing a trajectory of strong expansion for the nation's economy in the fiscal years 2024 and 2025. The upward revision in India's GDP outlook comes alongside a trimmed forecast for China, struggling with challenges posed by its ongoing property crisis.

India's GDP Outlook

Fitch now anticipates India's real GDP to surge by 7.8% in FY24, marking a significant upward revision from its previous estimate of 6.9% in December 2023. Moreover, the agency projects a growth rate of 7.0% for FY25, up from the earlier forecast of 6.5%, highlighting substantial positive adjustments. These revisions underscore Fitch's confidence in India's economic resilience and its capacity to maintain robust growth momentum amidst evolving global dynamics.

The revised forecasts are underpinned by increased domestic demand, particularly in investment, boosted by sustained levels of business and consumer confidence. Fitch underscores the crucial role of domestic factors, especially investment, in propelling India's economic growth trajectory, signifying a shift towards self-sustained expansion.

The agency's optimistic outlook also aligns with India's recent GDP performance, which surpassed expectations, recording an impressive 8.4% growth in the October-December quarter, fueled by robust manufacturing and construction sectors.

Global Economic Context

Conversely, Fitch has tempered its forecast for China's GDP growth in 2024, reflecting concerns over the nation's ongoing property crisis and mounting deflationary pressures. The revised global outlook underscores the significance of regional dynamics in shaping broader economic trends, with India emerging as a key driver of growth in the midst of global shifts.

Fitch's revised projections for India also bear implications for monetary policy, with expectations of a more moderate pace of future rate cuts by the Reserve Bank of India (RBI). Despite the stronger growth outlook, the agency anticipates a more conservative approach from the RBI, projecting a potential 50 basis points (bps) rate cut from July to September, down from the earlier estimate of 75 bps. The revised rate cut expectations reflect a delicate balance between stimulating economic growth and maintaining price stability, particularly in light of evolving inflation dynamics.

Inflation Dynamics

Fitch highlights the significance of food prices in shaping inflation developments, emphasizing the importance of monitoring inflationary pressures as India strives to achieve the RBI's target range of 2-6%.

While retail inflation remained unchanged at 5.1% in February, core inflation measures exhibited a steady decline, indicating a potential easing of inflationary pressures in the coming months. Fitch expects headline retail inflation to converge towards the RBI's midpoint target of 4% by the end of December 2024, contingent upon a cooling of food prices.

The revisions by Fitch follow similar adjustments by other global ratings agencies, including S&P and Moody's, in response to India's strong economic performance. India reported a GDP growth of 8.4% in the October-December quarter, marking the fastest growth in 18 months and retaining its position as the fastest-growing economy globally.

Fitch's upward revision of India's GDP outlook for FY24 and FY25 underscores the nation's resilience amidst global economic shifts, with domestic demand emerging as a key driver of growth. While challenges persist in the global economic landscape, India's steadfast expansion trajectory reaffirms its position as a beacon of growth and stability in the region, with implications for monetary policy and inflation dynamics.