“India is poised to remain one of the fastest-growing countries globally in the next few years as the robust economic momentum is proving resilient,” the global ratings agency said in a release.
Fitch forecasts GDP growth of 6.9% in the fiscal year ending March 2024, which is well above its earlier forecast of 6.0%. However, growth is likely to ease to 6.5% in FY25, Fitch predicts.
This growth will be underpinned by the government’s infrastructure drive, a solid private investment outlook and favourable demographics, the rating agency said.
The improved health of bank and corporate balance sheets should pave the way for a positive investment cycle. Sustained reforms could support and boost growth prospects, but risks may arise from an uneven implementation record.
Investment is likely to remain a key growth driver, as the government’s capex drive is expected to continue and private investment should accelerate gradually, Fitch said.
Meanwhile, consumption is likely to moderate further in the near term due to reduced household savings buffers, according to Fitch.The other factor supporting the rating and outlook of India is easing core inflation.
Core inflation has decelerated and touched 3.7% in December from around 6% in end-2022, which should help anchor headline inflation.
“We forecast headline inflation to ease towards 4.7% by end-2024 from 5.7% in December 2023. Under this inflation outlook, we see the RBI cutting its policy rate by 75 bps in FY25,” Fitch said in a release.
However, weak public finances amid high deficits, debt and interest/revenue ratio compared with peers, continue to be the largest constraint for the rating, Fitch warned.
“Lagging structural metrics, including World Bank governance indicators and GDP per capita, also weigh on the rating,” it said.
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