Fitch Ratings has increased India’s growth forecast for the upcoming financial year to 7% from a previous estimate of 6.5% on strong domestic demand and ongoing growth in business and consumer confidence.

The global rating agency also predicts growth in the current financial year will hit 7.8%, surpassing the government’s forecast of 7.6%

“Domestic demand, especially investment, will be the main driver of growth amid sustained levels of business and consumer confidence. Our forecasts imply that growth in the short term will outpace the economy’s estimated potential and that the pace of growth of activity will then moderate towards the trend in FY25, with real GDP rising by 6.5% in [FY26],” the rating agency stated.

“Prospects for emerging markets (excluding China) have brightened, particularly in India, where we now expect growth to reach 7.8% in the financial year ending March 2024 and 7% in FY25, both sizable upward revisions. With GDP growth having exceeded 8% for three consecutive quarters, we expect an easing in growth momentum in the final quarter of the current financial year,” Fitch Ratings added.

Furthermore, the rating agency said consumer price inflation had increased in the final months of 2023, fuelled by food prices. The Reserve Bank of India (RBI) also held its key policy rate at 6.5%, with its rhetoric focused on the “withdrawal of monetary accommodation” and the need for inflation to return to target, Business Standard reports.

“Core inflation measures are steadily declining, underlining that developments in food prices (which account for around half of India’s consumer price index) will be key to inflation developments and the pace at which inflation will approach the RBI’s 4% mid-point of its 2- 6% target band.

“We expect headline inflation to steadily decrease to 4% by calendar year-end on the assumption that recent food price volatility will subside. We now think that the RBI will cut rates only in the second half of 2024 and by 50 basis points (bps) (revised from 75 bps in December) in view of the stronger growth outlook,” the rating agency went on to say.