Mumbai, Mar 6 (PTI) India’s real GDP growth will moderate to 6.8 per cent in FY2025 from the 7.6 per cent expected in the ongoing fiscal, Crisil Ratings said on Wednesday.
Higher interest rates and demand being tempered by lower fiscal impulse will lead to the moderation of growth, the leading domestic ratings agency said.
The agency, however, added that even with the moderated economic growth rate, India will continue to be the fastest-growing large economy.
The government has affirmed to narrow the fiscal deficit to 5.1 per cent in FY25, and the elevated inflation or risks of price rise have prevented the RBI from cutting interest rates after hiking it by a cumulative 2.50 percentage points earlier.
Crisil said the nature of government spending will provide some support to the investment cycle and rural incomes.
Its chief economist Dharmakirti Joshi told reporters that it expects the RBI to cut rates by 0.50-0.75 percentage point in FY25, but added that the cuts will be gradual with the earliest one not before June.
The RBI will have to first shift the stance of the monetary policy to neutral from the current withdrawal of accommodation before cutting the rates, Joshi said, adding that it may look at shifting stance and cutting rates in the same policy review as well.
Inflation has been softening and the trend will continue even in FY25 on the back of healthier agriculture output that tames food inflation, and benign oil and commodity prices, the agency said.
The rating agency feels the growth momentum will continue through this decade on significant private investments in emerging sectors, continuing government spending on infrastructure, ongoing reforms push, and efficiency gains from increasing digitalisation and physical connectivity.
“The next seven fiscals will see the Indian economy cross the USD 5 trillion mark and close in on USD 7 trillion at an estimated 6.7 per cent average annual growth,” the agency’s managing director and chief executive Amish Mehta said.
He added that by FY31, India will be the third-largest economy in the world, and an upper middle-income country, which will help domestic consumption.
Joshi said by the end of the current decade, India’s per capita income will breach USD 4,500.
He said India is now reaping the benefits of investments in the digital and physical infrastructure that it has created. In a note, the agency said Both manufacturing and services cylinders will fire till FY31, yielding a sturdier growth path.
“We project manufacturing and services to grow 9.1 per cent and 6.9 per cent, respectively, between fiscals 2025 and 2031,” Joshi said.
Amid concerns about private capital expenditure, the agency said fixed investments by private companies have started inching up and have ample headroom for growth, while government initiatives keep boosting the infrastructure segments.
It said industrial capex will rise to Rs 6.5 lakh crore annually on average between fiscals 2024 and 2028, from Rs 3.9 lakh crore in the preceding five fiscal.
Joshi explained that factors like better clarity on the demand scenario, an ability to invest given the deleveraged balance sheets and higher profits will lead the corporates to invest.
A senior official from the agency said a bulk of the investments in new-age sectors like semiconductors or green hydrogen will be coming either from large domestic corporate houses or global multinationals.
The corporate houses are likely to go for bond borrowings rather than relying on bank lending, the official said.
There will be near- and medium-term challenges posed by geopolitical uncertainties, global indebtedness, uneven economic recovery, climate change and technological disruptions, the agency said.
If the incumbent government is able to retain a majority, it will be focusing on reinitiating farm sector reforms, undertaking efforts to push manufacturing and also helping the underprivileged through social security interventions, Joshi said. PTI AA MR
This report is auto-generated from PTI news service. ThePrint holds no responsibility for its content.