Mumbai, Aug 1: Citing the ongoing growth momentum led by government capex, deleveraged balance sheets of corporate robust quality banks’ assets, and a likely revival in private corporate capex, India Ratings has upped its growth forecast for the current fiscal to 7.5 percent—the highest among all analysts and 30 bps over the Reserve Bank estimate.
The agency had previously projected a 7.1 percent uptick in the GDP, which has surprisingly grew at 8.2 percent in FY24. At 7.2 percent, the Reserve Bank forecast is the highest from the official estimates, which was revised up by 20 bps from its April forecast, while the budget has pegged it at 6.5-7 percent.
Pegging higher growth at 7.5 percent for this fiscal, the agency in a report Wednesday said the Budget promises to bolster agricultural/rural spending, improve credit delivery to MSMEs and incentivise employment creation in the economy.
The agency believe these measures would help in broad-basing consumption demand which if not addressed can constrain the ongoing growth momentum.
Expecting consumption demand revival, which grew only 4 percent in FY24, which is not even half the rate of GDP growth, the report expects private final consumption expenditure to grow 7.4 percent in FY25, up from 4 percent in FY24. If achieved, it will be a three-year high.
Consumption demand is highly skewed, as it is driven by goods and services largely consumed by the households belonging to the upper income bracket. However, an above-normal monsoon coupled with the measures announced in the Budget is expected to correct it, by boosting the demand of goods and services consumed by rural households and those belonging to the lower income bracket, says the report.
Although food inflation continues to be a risk, the expectation of retail inflation in FY25 averaging lower than in FY24 will support the real wage growth, it added.
When it comes to investments, the government continues to lead the way with a capex of Rs 11.1 trillion in FY25. The 26 states excluding Arunachal and Sikkim have budgeted Rs 9.5 trillion for FY25 after spending Rs 8.8 trillion in FY24. The agency thus expects gross capital formation to grow 8.9 percent in FY25, marginally down from 9 percent in the previous year.
A revival in the private sector capex may reduce the capex spending of the government, but that is still some distance away. The private sector’s greenfield capex barring a few sectors has remained down and out now for several years. Overall, 982 projects sanctioned by banks/financial institutions raised Rs 3.53 trillion in FY23 compared to 791 projects with an investment of Rs 1.98 trillion in FY22.