CARE Ratings pares down India's FY25 GDP growth forecast to 6.5%

On the back of a contraction in corporate profitability, public capital expenditure, and sluggish urban consumption, CARE Ratings on Friday revised downwards its gross domestic product (GDP) growth forecast for FY25 to 6.5 per cent from 6.8 per cent estimated earlier.   “This downward adjustment reflects slower GDP growth in Q2, a deeper contraction in corporate profitability during the same period, a decline in public capex in H1, and softness in certain high-frequency data pertaining to urban consumption demand,” the rating agency said during a virtual webinar.   It further noted that the slowdown is expected to be temporary, as GDP growth is likely to pick up in the second half of the year with the government increasing its capex spending and healthy agricultural production bolstering rural consumption. Moreover, the government is expected to continue on the path of fiscal consolidation.   Additionally, the economy is projected to grow by 6.7 per cent in FY26.   Sachin Gupta, chief rating officer at CARE Ratings, said that the first half of FY25 paints a picture of cautious optimism within India’s corporate sector, where stability and resilience meet global challenges head-on.   “Amid the uncertain global environment, there is a lingering hesitancy among businesses to commit to long-term investments, as the anticipated boost in private capital expenditure is yet to materialise. However, we expect to see improvement in private investment in 2025, supported by anticipated monetary policy easing,” he added.   The downward revision by the rating agency comes days after the global multilateral funding body, the Asian Development Bank (ADB), lowered its growth forecast for the current financial year to 6.5 per cent from 7 per cent estimated earlier. This was attributed to weak industrial output due to tight prudential norms by the central bank, which curtailed growth in unsecured personal loans, muted public capital spending, and elevated food prices.   The economy hit a seven-quarter low of 5.4 per cent in Q2FY25, down from 6.7 per cent in the preceding quarter.   On the inflation front, CARE Ratings noted that food inflation is expected to moderate in the coming quarters, driven by a strong kharif harvest and favourable rabi sowing. In FY25, inflation is expected to remain at 4.8 per cent.   Driven by moderation in food inflation, the rating agency also mentioned that it expects a policy rate cut of 50-75 bps in 2025.   On government finances, it projected that weak corporation tax collection will be compensated by healthy income tax collection for the year. The Centre’s capex is expected to fall short of the target by Rs 1.5 trillion. With lower capex, the fiscal deficit is projected to remain at 4.8 per cent of GDP, marginally lower than the budgeted 4.9 per cent of GDP.