S&P Global Ratings on Monday projected India’s economic growth at 7.3 per cent for FY23 with downside risks. The global rating agency in its Economic Outlook for Asia Pacific 2022 report said that inflation is likely to remain above RBI’s upper tolerance threshold of 6 per cent till the end of 2022. India’s growth next year will get support from domestic demand recovery after the coronavirus pandemic, it added. “We have retained our India growth outlook at 7.3 per cent for the fiscal year 2022-2023 and 6.5 per cent for the next fiscal year, although we see the risks tilted to the downside,” the rating agency said.
On inflation, S&P Global Ratings pegged the average rate in the current fiscal at 6.8 per cent and projected it to fall to 5 per cent in FY24 beginning April 2023. “India’s headline Consumer Price Inflation (CPI) is likely to remain outside the Reserve Bank of India’s upper tolerance limit of 6 per cent until the end of 2022. That’s amid substantial weather-induced wheat and rice price increases as well as sticky core inflation. And food inflation may rise again,” the agency noted. According to the report, elevated core inflation would drive up policy rates further in India, and projected CY22 terminal interest rates at 5.90 per cent.
According to the S&P Global’s Economic Outlook for Asia Pacific Q3 FY22 report, with the exception of China, Asia-Pacific is breathing easier than the rest of the world. Global obstacles have altered the outlook since the Credit Conditions Committee convened three months ago. “These include a longer-than-expected Russia-Ukraine conflict; higher energy and commodity prices; higher and more sticky inflation, especially in the U.S.; faster monetary policy normalization in the U.S. and Europe; and economic damage from COVID-19 lockdowns and restrictions in China,” it said. For Asia-Pacific, the two key changes to the global outlook are the weaker growth in China due to stringent COVID restrictions, and the higher projected US interest rates.
Last week, Chief Economic Advisor V Anantha Nageswaran said in an interview that the global economic slowdown will be a positive for India. Indian economy is expected to grow at a rate between 7.2 per cent and 7.4 per cent this financial year, he said. “I think global growth was going to be impacted whether or not the central banks in the developed world tightened (their monetary policy), because the high inflation rate would have reduced consumer appetite and purchasing power. And, therefore, I feel the slowdown, on balance, would be a positive thing for India, given the kind of downward pressure it exerts on the crude oil and other commodity prices, industrial metals, and food supplies in general,” said Nageswaran.
Several major rating agencies have recently cut India’s GDP growth forecast amid higher inflation and rising policy interest rates. Earlier this month, Fitch Ratings slashed the growth estimate to 7 per cent for the current fiscal from 7.8 per cent pegged earlier. India Ratings & Research too reduced its projections to 6.9 per cent from 7 per cent earlier. Asian Development Bank has cut the projection to 7 per cent from 7.5 per cent earlier. Note that the Reserve Bank of India (RBI) expects the Indian economy to grow 7.2 per cent in the current fiscal.