By Pranoy Krishna
BENGALURU (Reuters) -The Indian economy will grow slightly faster than previously expected this fiscal year, a Reuters poll showed, as economists raised their forecasts for a second straight month following a surprise 7.8% expansion in the April to June quarter.
That unexpected boost, along with a cut to the country’s Goods and Services Tax (GST) timed around the festive season to spur consumer demand, has led most economists in the October 15-24 survey to revise up their full-year forecasts from last month or leave them unchanged.
While a punitive 50% tariff levied by the U.S. on Indian goods is still in place, recent comments from Washington and New Delhi have raised optimism it will be reduced.
Gross domestic product growth was forecast to average 6.7% this fiscal year, according to the median forecast of over 40 economists.
That is slightly above the 6.6% estimate from last month’s Reuters poll, and a notable upgrade from 6.3% projected in August before the stronger-than-expected April-June quarter growth figures were released.
TARIFFS OFFSET DOMESTIC TAX POLICY BENEFITS
Still, a solid 68% majority of economists, 34 of 50, expect the RBI to cut interest rates by 25 bps in December after holding the repo rate at 5.50% earlier this month. In September’s poll, a slight majority had forecast no change.
That shift comes after the central bank signalled in October that cooling inflation had opened up policy space to support growth. The poll also showed inflation averaging at 2.5% this fiscal year before rising to 4.2% next year.
Poll medians showed rates on hold at least through to the first half of 2027 after the anticipated rate cut this December.
“The monetary and fiscal policy support for growth, and the performance of the rural economy have led to our assessment of slightly revising up our GDP growth numbers for the year,” said Sakshi Gupta, principal economist at HDFC Bank.
All but one of the 21 economists who also responded to an extra question said that over the coming year, the economy was more likely to grow faster rather than slower than estimated.
The poll predicted GDP to grow 6.5% next fiscal year and the year after.
Abhishek Upadhyay, senior economist at ICICI Securities PD, said: “The big headwind … really was the higher tariffs imposed by the U.S., which were seen as offsetting the benefit from GST. But if that headwind cools then growth in the second half of the year could even be stronger than we currently expect.”
PRIVATE INVESTMENT CONCERNS LINGER
While recent tax cuts may bring some relief to Indian households, doubts linger whether they will be enough to revive private investment – the key driver of job creation for the millions joining the country’s workforce each year.
Frequent shifts from the Trump administration on India have added uncertainty, giving investors little confidence to commit fresh capital to the world’s fastest-growing major economy.
“Whenever there is uncertainty, the worst-affected segment in the entire GDP spectrum is investment, and it’s happening. So once uncertainty fades away, we may see even private investment come back,” said Kanika Pasricha, chief economic adviser at Union Bank of India.
“GST reform to address the … demand issue may see an impact with a lag, given that the overall global uncertainty is also curbing capex recovery.”
(Other stories from the October Reuters global economic poll)
(Reporting by Pranoy Krishna, Polling by Veronica Khongwir and Rahul Trivedi; Editing by Muvija M)
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