GDP Growth Will Moderate To 6.5% In FY25 On Global Headwinds: Axis Bank

India's real GDP growth will moderate to 6.5% in FY25, mainly due to global headwinds, Axis Bank's chief economist Neelkanth Mishra said on Monday.

India's GDP is 7% lower than what it would have been if the pre-pandemic GDP growth trend had continued, Mishra added.

It can be noted that last Friday, the Reserve Bank sharply upped its FY24 growth estimate to 7% from the earlier 6.5%. Mishra also pegged the FY24 growth at 7% with upside risks.

For FY25, he expects a moderation in the real GDP growth to 6.5%, Mishra said, attributing the same to an intensification of global headwinds in the near future.

He said the domestic activity is resilient, and the global growth is already proving to be a drag, and added that the same is likely to worsen going ahead.

Mishra explained that in the US, the largest economy in the world, the growth is being boosted by fiscal deficit and predicted the long-feared recession to be a reality.

"Recession in the US is delayed, not deferred," he said, terming the situation around the fiscal deficit in the US as his biggest concern.

The chief economist said he is alarmed by the lack of discussion on this critical aspect, stating that the US fiscal challenges are underappreciated.

The US has adopted a pro-cyclical policy stance rather than being the more prudent counter-cyclical one adopted by countries like India, Mishra said.

The world has to get used to the "policy inversion" in the US, and the scarcity in dollars, Mishra said, adding that the latter will impact even a country like India.

He said while India could easily fund $70 billion of a current account deficit, funding even $30-40 billion will now get hard.

The general elections in India will not lead to much of a change in the policy direction, Mishra said, adding that if he were a corporate, he would decide to start investing soonest because of the demand.

He pointed to power generation – coal-based and renewable – as one of the investment areas and added that capital expenditure is already happening in many areas.

The Reserve Bank is unlikely to cut its repo rate through 2024 on the volatile food inflation, he said, adding that the headline number will cool down in the year.

The government is likely to cut the fiscal deficit by 0.70% each in FY25 and FY26 to meet its stated target of getting the number down to 4.5%, he noted.

Foreign rating agencies are unlikely to upgrade the country's rating even if the fiscal gap narrows, he said, adding that there is a need for a lowering in the high debt-to-GDP ratio.