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