In September, Fitch projected 7% growth for the current fiscal, followed by 6.7% in 2023-24 and 7.1% growth in 2024-25. File
Fitch Ratings on December 6 retained India’s economic growth forecast at 7% for the current fiscal, but cut projections for the next two financial years saying the country is not impervious to global developments.
In its December edition of the Global Economic Outlook, Fitch projected India’s GDP to grow at 7% in the current fiscal, at a slower rate of 6.2% in 2023-24 and at 6.9% in 2024-25.
In September, Fitch projected 7% growth for the current fiscal, followed by 6.7% in 2023-24 and 7.1% growth in 2024-25.
Given the stronger-than-expected outturn in the July-September quarter with GDP growth at 6.3%, Fitch forecasts growth at 7% in the financial year ending March 2023 (FY23).
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“India is expected to record one of the fastest growth rates among emerging markets in our Fitch20 coverage this year,” it said.
Separately, the World Bank on Tuesday revised upwards its GDP growth forecast for India to 6.9% for 2022-23, from 6.5% projected in October, saying the economy was showing higher resilience to global shocks.
The Indian economy grew 8.7% in 2021-22 fiscal.
The global rating agency said India is shielded to some extent from global economic shocks given the domestically focused nature of its economy, with consumption and investment making up the bulk of the country’s GDP.
“However, India is not impervious to global developments. The worldwide economic slowdown is expected to reduce demand for Indian exports,” Fitch said.
The agency also revised down the world GDP forecasts for 2023 as central banks intensify their fight against inflation and the outlook for China’s property market deteriorates.
Fitch now expects the world GDP to grow by 1.4% in 2023, revised down from 1.7% projected in September. China 2023 growth forecast too has been cut to 4.1%, from 4.5% earlier, as prospects for a recovery in housebuilding fade.
“Taming inflation is proving to be harder than expected as price pressures broaden and become more entrenched. Central bankers are having to take the gloves off. That won’t be good for growth,” Fitch Ratings Chief Economist Brian Coulton said.
With regard to India, Fitch said monetary policy tightening and high inflation have also contributed to a slowdown in imports, an easing in personal loan growth and falling purchasing power. Tighter financial market conditions are also weighing on demand for capital goods, which serves as a leading indicator for investment.
“That said, economic resilience is reflected in upbeat labour market conditions with unemployment easing and labour participation improving,” Fitch added.
Inflation eased to 6.77% in October though core inflation edged up again after moderating over the summer, and households’ inflation expectations remain high as food price inflation remains elevated, Fitch said.
“Weakness in the rupee against the U.S. dollar is adding to inflationary concerns at the RBI given that a third of the CPI basket consist of imports,” it said.
The RBI has raised rates by a cumulative 190 basis points since the start of the tightening cycle in April 2022, lagging behind the Fed’s 350 basis points increases over the same period.
“The RBI has already intervened to support the rupee and further rate rises are likely to support the currency and to curtail underlying inflationary pressure. We now expect the RBI to increase policy rates to 6.15% by December and to then hold this rate throughout 2023,” Fitch said.
The RBI’s monetary policy committee is widely expected to raise the benchmark interest rates on December 7 from 5.90% currently.
