Fitch Ratings on Wednesday slashed India’s economic growth forecast to 8.4 percent for the current fiscal year ending March 31, 2022
It noted that the rebound after the second wave of COVID infections had been subdued than expected.
The global ratings firm had previously forecast a GDP growth of 8.7 per cent in 2021-22 (April 2021 to March 2022).
Despite the downward review of its earlier projection on the country’s GDP in the current financial year ending in March 2022, Fitch, however, raised India’s economic growth projection for the next financial year (FY23) to 10.3 per cent from previously forecast 10 per cent.
It would be recalled that India’s economy had contracted by 7.3 per cent in the 2020-21 fiscal as restrictions imposed by the government to curb spread of COVID-19 pandemic crippled business activity.
Fitch stated in its Global Economic Outlook (GEO): “India’s economy staged a strong rebound in 3Q21 (July-September 2021) from the Delta variant induced sharp contraction.”
The ratings agency further reported that the GDP rose a sharp 11.4 per cent when compared to the preceding April-June quarter when it had slumped 12.4 per cent, noting “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 further clarified that nevertheless, business surveys and mobility data point to activity growing robustly in 4Q21 (October-December 2021), adding that growth in the manufacturing sector is constrained by ongoing supply shortages, but the supply bottlenecks are expected to ease in the coming months.
While noting that carmakers are signalling a ramp-up of production while domestic coal production is increasing to make up for shortages, Fitch said it expected the services sector to show a strong reading amid the lifting of most restrictions.
It stated: “We have cut our FY22 (financial year ending March 2022) GDP growth forecast, to 8.4 per cent (-0.3pp). GDP growth momentum should peak in FY23, at 10.3 per cent (+0.2pp), boosted by a consumer-led recovery and the easing of supply disruptions.”
According to the firm, an increasing share of the population being fully vaccinated has reduced the risk of future disruptive outbreaks and will support consumer confidence.
Despite the positive outlook, Fitch still cautioned that “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.”
On inflation, Fitch reported that price rise was largely driven by domestic factors as inflation rate has consistently hovered above the upper-band of the Reserve Bank of India’s 2 per cent-6 per cent target since the onset of the pandemic, initially pushed up by pandemic-related disruption to local supply chains, boosting food prices.
For instance, it noted that Core price pressures (excluding food and energy) had been gradually rising, as core inflation has hovered around 6 per cent in recent months.
Fitch reported: “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 per cent in 2022 and 4.2 per cent in 2023, from 5 per cent in 2021, amid moderate food inflation.”
