India’s Growth Outlook: Diverging Paths of S&P and FinMin

Contrasting Views on India’s Economy

S&P Global Ratings has lowered India’s GDP growth projections, citing high interest rates, reduced fiscal stimulus, and global headwinds. The agency now forecasts growth at 6.8% for FY25, easing further to 6.7% in FY26, down from earlier estimates. It highlights challenges such as subdued export demand, weaker construction activity, and geopolitical uncertainties, particularly following the US elections.

In contrast, the Ministry of Finance remains optimistic, projecting stable growth between 6.5% and 7% for FY25. It points to strong agricultural output, rising domestic demand, and resilient high-frequency indicators like the Purchasing Managers’ Index (PMI) and e-way bill generation as signs of economic stability.

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1- Decoding the Downturn

S&P’s report attributes the slowdown to:

• High borrowing costs, curbing urban demand.
• Softening fiscal stimulus in the post-election period.
• Global trade challenges, particularly weaker export recovery amid slowing demand in developed markets.

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2- Ministry’s Cautious Optimism

The Finance Ministry highlights factors driving growth, including:

• Robust agriculture, supported by favorable monsoon and increased minimum support prices.
• Stable inflation trends, with early signs of easing food prices in November.

3- Inflation and Monetary Policy

India’s retail inflation hit 6.21% in October, breaching the Reserve Bank of India’s target range for the first time in over a year. Food inflation, a key contributor, surged to 10.87%, its highest in 15 months. While this may delay rate cuts, S&P anticipates just one policy rate reduction in FY25 as inflationary pressures persist.

4- Balancing Global and Domestic Dynamics

India’s export growth remains a concern, but the services sector continues to show strength. The Ministry’s confidence stems from improving domestic demand and policy measures to stabilize inflation. However, S&P warns that external risks, including changing US trade policies, could weigh on growth.

A Tale of Divergence

The differing estimates reflect the balancing act between global headwinds and domestic resilience. With GDP data for Q2FY25 expected soon, the numbers will provide further clarity on India’s growth trajectory. While S&P’s caution underscores external challenges, the Ministry’s optimism highlights the enduring strength of India’s domestic economy.

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