Fitch emphasized that India’s investment landscape is expected to be a key driver of economic growth, citing the continuation of the government’s capital expenditure drive and a gradual acceleration of private investment. Despite the positive outlook, Fitch points out that beyond the fiscal year 2024, there is increased uncertainty regarding the fiscal path.
“We estimate India’s potential GDP growth at 6.2%, underpinned by the government’s infrastructure drive, a solid private investment outlook and favourable demographics. The improved health of bank and corporate balance sheets should pave the way for a positive investment cycle. Sustained reforms could support and boost growth prospects, but risks may arise from an uneven implementation record. Labour market weakness, partly reflected in low female participation, also poses a risk to the outlook,” the rating agency said.
Fitch estimated that the fiscal deficit will remain elevated in FY24. However, it anticipates policy continuity in India, with a gradual focus on fiscal consolidation and sustained momentum in economic reforms. This expectation holds particularly true post-elections, reinforcing the belief in the country’s commitment to economic stability.
“We forecast the general government (GG) fiscal deficit will remain elevated, at 8.6% of GDP in FY24 (2023 BBB median: 3.5%) from 9.2% in FY23. We expect the central government (CG) to achieve its 5.9% of GDP FY24 deficit target from 6.4% in FY23. Revenue collection is buoyant as the 2016 goods and services tax reform matures. Expenditure quality has improved as capex is largely in line with the budget’s ambitious plans. Subsidy and income support spending has risen beyond budget expectations, but we expect spending to be managed to meet the target, even in an election year,” the report further stated.
Furthermore, Fitch projected a positive trajectory for India’s foreign exchange reserves, anticipating a continued increase due to substantial portfolio inflows and a narrower current account deficit. This reaffirmed confidence in the country’s economic resilience and ability to attract foreign investments.Looking ahead, Fitch said that the Reserve Bank of India (RBI) to play a pivotal role in supporting economic measures. The agency predicted a 75 basis points (bps) cut in the policy rate by FY25, reflecting a commitment to stimulating economic growth.
