Fitch Ratings has pegged India’s GDP growth forecast to 7% for the current financial year 2022-23, due to a large boost from consumption and investment. Fitch’s forecast comes shortly after the World Bank raised its own growth forecast for India earlier today. “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,” said Fitch in its global economic outlook report.
It also expects the Reserve Bank of India to increase policy rates to 6.15% by December and then hold this rate throughout 2023. RBI monetary policy committee will announce its decision on Wednesday, December 7, 2022.
The ratings agency believes that the global economic slowdown will reduce the demand for Indian exports as the merchandise exports in October fell by over 16% in almost two years. “India is not impervious to global developments. The worldwide economic slowdown is expected to reduce demand for Indian exports and weakness is already evident in recent data – merchandise exports declined for the first time in almost two years including in textiles, petroleum products and engineering goods,” the Fitch report said.
On the other hand, the Reserve Bank of India’s aggressive stance to tackle surging inflation, according to the report, contributed to the slowdown in imports. “Monetary policy tightening and high inflation have also contributed to a slowdown in imports, easing 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.”
India’s economy likely grew more than expected in 3Q22 (July-September), growing 6.3% on-year, which was stronger than what Fitch expected earlier, prompting it to raise the full fiscal year growth forecast to 7%. “India is expected to record one of the fastest growth rates among emerging markets in our Fitch20 coverage this year,” it said.
India’s economic resilience is reflected in upbeat labour market conditions with unemployment easing and labour participation improving. The employment sub-index of the manufacturing PMI also accelerated in October to an almost three-year high while the services sector equivalent remained in expansion.