India Ratings expects GDP to grow 6.5% next financial year

India Ratings and Research (Ind-Ra) expect the economy to grow at 6.5 percent in the financial year 2024-25, 50 basis points lower than what was projected by the central government and the Reserve Bank of India (RBI) at its recent policy review. The ratings agency on Thursday said the sequential GDP growth indicated that the economic recovery was on track due to sustained government capex, healthy corporate performance, continued softness in global commodity prices, and the prospect of a new private corporate capex cycle. However, it noted that there are risks as aggregate demand in the economy is largely driven by government capital expenditure. “Prevailing consumption demand is still skewed in favor of the goods and services consumed by households belonging to the upper 50 percent of the income bracket,” the rating agency said. Hit by the growth slowdown in advanced economies and rising trade distortions/geopolitical fragmentation, the rating agency said India’s exports are likely to face global headwinds even in 2024-25. India’s goods and services exports during the first 10 months of 2023-24 recorded a negative growth rate of 0.14 percent. Another issue that will have implications for gross value added (GVA) and corporate profitability in 2024-25 is the rise in Wholesale Price Index (WPI) inflation, which is akin to the producers’ price index. The WPI after remaining in deflation from April to October 2023, has turned into inflation since November 2023. In January 2024, it was at 0.27 percent. “A rise in input cost, if not adequately passed into output prices, will reduce value addition/corporate margin. Given that consumption is not broad-based, producers will find it difficult to pass on the higher input cost to output prices,” Sunil Kumar Sinha, principal economist, Ind-Ra, said. Since consumption demand is skewed in favor of the goods and services consumed largely by households belonging to the upper-income bracket, Ind-R