India’s economic growth is under the spotlight as retail inflation surged to a 14-month high of 6.21% in October, with food inflation reaching 10.87%, breaching the RBI’s tolerance band of 2-6%.
Recently speaking at the Central Banking seminar in New York, the Reserve Bank of India’s Deputy Governor said, “India is already the third largest economy in terms of purchasing power parity. Our projections show that India’s real GDP growth will be 7.2 per cent in 2024-25 and around 7.0 per cent in 2025-26 in a cyclical correction to the rebound from the pandemic. Thereafter, there is a strong likelihood that India’s growth will revert to the 8 per cent trend.”
While there also are hopes lingering for a rate cut, as seen with the Federal Reserve, growth forecasts from key institutions like ICRA, Morgan Stanley, and Moody’s remain divergent. Here’s what they say:
ICRA lowers growth estimates to 6.5% in Q2 FY25
ICRA estimates India’s GDP growth to dip slightly to 6.5% in Q2 FY25, from 6.7% in Q1 FY25, accompanied by a similar moderation in gross value added (GVA) growth to 6.6% from 6.8%.
The industrial sector is expected to drive this slowdown, with GVA expansion falling to 5.5% in Q2 from 8.3% in Q1, largely due to weakened output in electricity, mining, and manufacturing. However, the services sector shows resilience, with GVA growth projected to rise to 7.8% from 7.2%, alongside a recovery in agricultural GVA to 3.5% from 2.0%, bolstered by a strong kharif sowing season.
Aditi Nayar, Chief Economist at ICRA, highlighted the mixed trends during the quarter, saying, “Q2 FY2025 saw tailwinds in terms of a pickup in capex after the Parliamentary Elections as well as healthy expansion in sowing of major kharif crops. Several sectors faced headwinds on account of heavy rainfall, which affected mining activity, electricity demand and retail footfalls, and a contraction in merchandise exports. Further, margins appear to have weakened for corporates in a variety of sectors in this quarter. As a result, we project a slight dip in India’s GVA and GDP growth in Q2 FY2025 to 6.6% and 6.5%, respectively.”Morgan Stanley downgrades growth to 6.7% for FY25
Morgan Stanley recently lowered India’s FY25 growth estimate from 7.0% to 6.7%, citing weaker-than-expected high-frequency data for Q2 FY25. The brokerage anticipates GDP growth to slow further to 6.3% during the quarter.
The analyst foresees a recovery in H2 FY25, driven by improved agricultural output, heightened government spending, and seasonal demand from the wedding season. Vehicle registration trends in November revealed a mixed performance, with two-wheeler sales improving year-on-year, while passenger vehicle sales showed a decline. The firm remains optimistic about the recovery trajectory in the second half, projecting growth to rebound to 6.7%-6.8%.
Moody’s upgrades growth numbers
Moody’s Ratings offers a more optimistic narrative, projecting India’s GDP to grow by 7.2% in calendar 2024, maintaining its status as the fastest-growing G20 economy. According to the report, this outpaces China’s anticipated growth of 4.7% and is attributed to structural shifts such as supply chain diversification, multinational investments, and domestic manufacturing momentum.
Moody’s took into account global uncertainties, including post-election policy shifts in major economies; it underscores India’s strong position amid easing inflation and robust growth trends.
