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Fitch Ratings on Thursday raised its forecast for Indian economic growth to 6.3% for the current fiscal year 2023/24 from the 6% it had predicted previously, according to a report published by the news agency PTI.
The growth forecast changed because of a stronger outturn in the first quarter and near-term momentum. In FY23, the growth forecast compares with a 7.2% GDP expansion. The economy had a growth of 9.1% in FY22.
In an official statement, the rating agency said, “India’s economy has been showing broad-based strength – with GDP up by 6.1% year-on-year in 1Q23 (January-March) and auto sales, PMI surveys and credit growth remaining robust in recent months – and we have raised our forecast for the fiscal year ending in March 2024 (FY23-24) by 0.3 percentage points to 6.3%.”
Fitch in March lowered its forecast for 2023-24 to 6% from 6.2% citing headwinds from elevated inflation and interest rates along with subdued global demand.
For the 2024-25 and 2025-26 fiscal years, it estimated a growth of 6.5% each, as per PTI reports.
The rating agency stated that GDP growth in January-March was higher than expected, saying there has been a recovery in manufacturing after two consecutive quarterly contractions, a boost from construction, and an increase in farm output.
“The stronger outturn in 1Q23 and near-term momentum have prompted us to upgrade our FY23-24 growth forecast to 6.3%…one of highest growth rates in the world,” it said adding India’s economy will be affected to an extent by slowing global trade.
Fitch Rating stated that the full impact of a 250 basis points increase in interest rates by RBI (since May 2022) is still to be felt, PTI reported.
“Consumers have also experienced a drop in purchasing power as inflation increased sharply in 2022 and household balance sheets have also been weakened through the pandemic,” it said.
“At the same time, the government’s push on increased capital expenditure, moderation in commodity prices, and robust credit growth are expected to support investment. Slowing inflation should also start to help consumers over time and households have now turned more optimistic about future earnings and employment,” the agency added.
The Reserve Bank of India (RBI) has kept policy rates at 6.5% since the start of the year, while headline inflation eased from a peak of 7.8% to 4.3% in May, a figure that is already within the RBI’s tolerance band of 2-6%.