S&P lowers India's GDP growth forecast for the next two fiscal years

For 2025-26 and 2026-27, S&P now expects India’s GDP to grow at 6.7 percent and 6.8 percent, respectively, marking a reduction of 20 basis points from earlier estimates.

The forecast for 2027-28 is projected at 7 percent.

S&P attributes the expected slowdown to higher interest rates and a reduced fiscal impulse, which are expected to weigh on urban demand.

Despite purchasing manager indices (PMIs) indicating continued expansion, other economic indicators point to some temporary softening in growth momentum.

This includes a slowdown in the construction sector during the September quarter.

The Reserve Bank of India (RBI) had recently stated that the slowdown observed in the second quarter of 2024-25 is behind, with private consumption driving demand again, particularly bolstered by festival spending in the October-December period.

India’s GDP grew 6.7 percent in the April-June quarter, which was lower than the RBI's forecast of 7.1 percent.

The GDP data for the July-September quarter is expected to be released on November 29.

The RBI has projected India’s 2024-25 GDP growth at 7.2 percent, while the International Monetary Fund (IMF) and World Bank estimate it at 7.0 percent.

Other global rating agencies have also upgraded their growth forecasts for India.

The Economic Survey presented earlier this year forecast India’s GDP growth for 2024-25 at a conservative 6.5-7 percent, acknowledging that market expectations are higher.

India’s economy grew by 8.2 percent in the 2023-24 fiscal year, maintaining its position as the fastest-growing major economy.

This followed growth rates of 7.2 percent in 2022-23 and 8.7 percent in 2021-22.

Despite this positive growth outlook, persistent food inflation is delaying rate cuts by the RBI.

S&P expects the RBI to reduce interest rates only once in the current fiscal year.

Food inflation, driven by supply shocks linked to changing rainfall patterns and climate change-induced heatwaves, remains a concern.

With consumer inflation at 6.21 percent in October, surpassing the RBI's 6 percent upper tolerance level, the central bank has kept the repo rate at 6.5 percent to control inflation.