The rating agency noted that higher interest rates and lower fiscal impulses will temper demand, bringing down growth to 6.8% from 7.6% estimated in FY24.
“The transmission of the rate hikes effected by the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) between May 2022 and February 2023 still continues and is likely to weigh on demand next fiscal,” it said in its India Outlook 2024 report.
The agency said the government keeping a fiscal deficit target of 5.1% for FY25 will also have a bearing on growth, noting that the nature of spending will still support the investment cycle and rural incomes.
The Indian rating concern further said that the country is likely to grow 6.7% for the rest of the decade moving closer to $7 trillion-mark.
“By fiscal 2031, India will be the No. 3 economy and an upper middle-income country, which will be a big positive for domestic consumption,” said Amish Mehta, Managing Director and CEO, CRISIL Ltd.The rating agency also highlighted that manufacturing, supported by emerging sectors and the government’s production-linked incentive scheme push, is expected to bolster manufacturing, increasing its share to 20% of GDP, but noted that services will remain the dominant driver of growth.“There is ample opportunity for both manufacturing and services to cater to domestic and global demand,” said Dharmakirti Joshi, chief economist, Crisil.
It pointed out that a boost in quality and quantity of labour could push growth up by 50 bps.
“We believe the Indian economy will take support from domestic structural reforms and cyclical levers and can retain — perhaps even improve — its growth prospects,” Crisil said.
However, it also pointed out the challenges posed by geopolitics, slowing potential growth from an uneven global recovery, climate change and technological disruptions could upend growth.
On the inflation front, Crisil highlighted that inflation will likely fall to 4.5% in FY25, which may prompt an action by RBI in its June meeting.
Experts indicate that RBI is likely to hold the policy rate at 6.5% for seventh consecutive time at its meeting next month.