Fitch raises India's GDP forecast to 6.3% from 6% for FY24

Tags: National Economy/Finance National News

Fitch Ratings has recently revised its forecast for Indian economic growth in the fiscal year 2023-24, increasing it from 6% to 6.3%. 

An overview of the news

• The revision is based on a stronger first-quarter performance and positive momentum in the near term.

Comparison with previous years

• In FY23, the growth forecast compares with a 7.2% GDP expansion. The economy had a growth of 9.1% in FY22. 

Factors contributing to the growth forecast change

• Fitch Ratings attributes the revised forecast to the overall strength of India's economy. 

• It highlights a 6.1% year-on-year GDP growth in Q1 2023, robust performance in auto sales, PMI surveys, and credit growth in recent months.

Upgraded forecast and global trade impact

• Fitch Ratings considers the stronger first-quarter performance and positive momentum as reasons to upgrade the growth forecast to 6.3%, which it states is one of the highest growth rates globally. 

• However, it acknowledges that India's economy may be affected by the slowdown in global trade.

Impact of interest rate increase and inflation

• Fitch Ratings mentions that the full impact of a 250 basis points increase in interest rates by the Reserve Bank of India (RBI) since May 2022 is yet to be felt. 

• It also highlights that consumers have experienced a decline in purchasing power due to increased inflation in 2022.

Supportive factors for investment

• The rating agency notes that the government's emphasis on increased capital expenditure, moderation in commodity prices, and robust credit growth are expected to support investment. 

• It anticipates that slowing inflation will gradually benefit consumers, and households are showing increased optimism about future earnings and employment.

RBI's policy rates and inflation

• The RBI has maintained policy rates at 6.5% throughout the year, while headline inflation has eased from a peak of 7.8% to 4.3% in May, falling within the RBI's tolerance band of 2-6%.

Growth forecast for future fiscal years

• Fitch Ratings estimates a growth rate of 6.5% for both the 2024-25 and 2025-26 fiscal years.