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S&P Global Ratings has raised India's Gross domestic product (GDP) growth forecast for the next financial year (FY25) to 6.8 per cent, but flagged restrictive interest rates as a dampener for economic growth. In November 2023, it had projected India's growth to be 6.4 per cent in FY25 on robust domestic momentum. It said the Indian economy is estimated to have clocked a growth of 7.6 per cent in the current fiscal (FY24).

S&P in its Economic Outlook for the Asia Pacific said ‘for Asian emerging market (EM) economies, we generally project robust growth, with India, Indonesia, the Philippines, and Vietnam in the lead.’  It said in largely domestic demand-led economies such as India, Japan, and Australia, the impact of higher interest rates and inflation on household spending power reduced sequential GDP growth in the second half. It noted that restrictive interest rates are likely to weigh on demand next fiscal year, while regulatory actions to tame unsecured lending will affect credit growth. It added that a lower fiscal deficit will also dampen growth. It said ‘even as we expect a mild slowdown in Asian EM economies, we generally see solid domestic demand growth and a pick-up in exports to drive robust growth, with India, Indonesia, the Philippines and Vietnam in the lead’.

The US-based agency further said high real policy rates will choke demand and are therefore likely to strengthen the case for lowering rates. It forecasts rate cuts of up to 75 basis points in India this fiscal. It said ‘in line with our projection for US policy rates, we largely expect these moves to occur in the second half of the year’. It noted that in India, slowing inflation, a smaller fiscal deficit and lower US policy rates will lay the ground for the Reserve Bank of India to start cutting rates. But it believed more clarity on the path of disinflation could push this decision at least to June 2024, if not later.