CARE Ratings Lowers India’s FY25 GDP Growth Forecast To 6.5 pc

New Delhi, Dec 14 (KNN) CARE Ratings has revised its gross domestic product (GDP) growth forecast for fiscal year 2025 from 6.8 percent to 6.5 percent, reflecting a nuanced economic environment characterized by multiple structural challenges. 

The downward adjustment stems from a complex interplay of factors, including slower GDP growth in the second quarter, a contraction in corporate profitability, declining public capital expenditure, and softening urban consumption patterns.

The rating agency, however, maintains a cautiously optimistic perspective, suggesting that the current economic slowdown is likely temporary. 

Anticipated government initiatives, such as increased capital expenditure and expectations of a healthy agricultural production season, are projected to stimulate rural consumption and potentially reinvigorate economic momentum in the latter half of the fiscal year.

Sachin Gupta, Chief Rating Officer, CARE Ratings, characterised the current corporate landscape as one of measured resilience. 

He highlighted a prevailing hesitancy among businesses to commit to long-term investments, attributing this conservatism to the uncertain global economic climate. 

Nonetheless, Gupta anticipates potential improvements in private investment during 2025, contingent upon expected monetary policy adjustments.

The economic forecast aligns with recent projections by the Asian Development Bank, which similarly lowered its growth estimate to 6.5 percent. 

Contributing factors include constrained industrial output resulting from stringent regulatory norms, particularly in the personal loan sector, muted public capital spending, and persistent elevated food prices.

Inflation dynamics present a relatively promising outlook. CARE Ratings projects food inflation will moderate in upcoming quarters, driven by favorable agricultural harvests.

The agency anticipates an overall inflation rate of 4.8 percent for the fiscal year and expects potential policy rate reductions ranging between 50 and 75 basis points in 2025.

Regarding governmental fiscal management, the rating agency predicts that potential shortfalls in corporation tax collection will be partially offset by robust income tax revenues. 

The Centre's capital expenditure is expected to fall short of its target by approximately 1.5 trillion rupees, with the fiscal deficit projected to marginally improve to 4.8 percent of GDP, compared to the initially budgeted 4.9 percent.

These projections underscore the complex economic challenges facing India, balancing potential growth opportunities with pragmatic fiscal constraints and global economic uncertainties.

(KNN Bureau)