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    Fitch Ratings revises India's FY22 GDP forecast to 8.4%; FY23 projection raised to 10.3%

    Fitch Ratings revises India's FY22 GDP forecast to 8.4%; FY23 projection raised to 10.3%

    Fitch Ratings revises India's FY22 GDP forecast to 8.4%; FY23 projection raised to 10.3%
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    By CNBCTV18.com  IST (Updated)

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    "We have cut our FY22 (financial year ending March 2022) GDP growth forecast, to 8.4 percent (-0.3pp). GDP growth momentum should peak in FY23, at 10.3 percent (+0.2pp), boosted by a consumer-led recovery and the easing of supply disruptions," Fitch Ratings said in its Global Economic Outlook (GEO).

    International ratings agency Fitch on Wednesday revised India’s economic growth forecast to 8.4 percent for FY22. Fitch had previously forecast a GDP growth of 8.7 percent for the current fiscal. The rating agency, however, has raised the FY23 economic growth projection to 10.3 percent from the previous forecast of 10 percent.
    The economy had contracted by 7.3 percent in the 2020-21 fiscal as restrictions imposed to curb spread of coronavirus pummeled business activity. "India's economy staged a strong rebound in 3Q21 (July-September 2021) from the Delta variant-induced sharp contraction," Fitch said in its Global Economic Outlook (GEO). The GDP rose a sharp 11.4 percent when compared to the preceding April-June quarter when it had slumped 12.4 percent.
    "However, the bounce was more subdued than we expected in our September GEO. The rebound in the services sector was weaker than hoped for," it said. Nevertheless, business surveys and mobility data point to activity growing robustly in 4Q21 (October-December 2021). Growth in the manufacturing sector is constrained by ongoing supply shortages, but the supply bottlenecks are expected to ease in the coming months.
    Carmakers are signalling a ramp-up of production while domestic coal production is increasing to make up for shortages. Fitch said it expects the services sector to show a strong reading amid the lifting of most restrictions.
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    "We have cut our FY22 (financial year ending March 2022) GDP growth forecast, to 8.4 percent (-0.3pp). GDP growth momentum should peak in FY23, at 10.3 percent (+0.2pp), boosted by a consumer-led recovery and the easing of supply disruptions," it said. An increasing share of the population being fully vaccinated has reduced the risk of future disruptive outbreaks and will support consumer confidence.
    But, "risks to the recovery remain, especially in the near term, given that less than one-third of the population is fully vaccinated. The newly discovered Omicron variant has added to risks," it said.
    On inflation, Fitch said price rises are largely driven by domestic factors. The inflation rate has consistently hovered above the upper-band of the Reserve Bank of India's 2 percent-6 percent target since the onset of the pandemic, initially pushed up by pandemic-related disruption to local supply chains, boosting food prices.
    Core price pressures (excluding food and energy) have been gradually rising: core inflation has hovered around 6 percent in recent months. "However, in contrast to many other emerging marks (EMs), food inflation has edged down markedly over the past months, helping to contain overall inflationary pressures. We expect headline inflation to average 4.9 percent in 2022 and 4.2 percent in 2023, from 5 percent in 2021, amid moderate food inflation," the rating agency said.
    Fitch expected the RBI to start raising interest rates in 2022, by 75 basis points, beginning in 2Q22. "A still large negative output gap and inflation close to the midpoint target should allow the RBI to lag many other EM peers in the interest rate-normalisation process. However, the central bank will continue to roll out liquidity withdrawal auctions to reduce excess liquidity in the banking system," it added.
    (With inputs from PTI)
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