In its most recent update, Fitch Ratings has reaffirmed India’s growth forecast for the fiscal year 2023-24 (FY24) at 6.3%, highlighting the nation’s impressive economic resilience in the face of challenges such as tightened monetary policies and declining exports. The Indian economy notably achieved a robust growth rate of 7.8% during the April-June quarter, primarily propelled by strong demand and a thriving services sector.
Fitch’s projections also encompass a growth rate of 6.5% for the subsequent fiscal year (2024-25). However, the report raises concerns regarding inflation risks. Fitch has revised its year-end inflation projection upwards, citing the looming threat of El Nino. It suggests that temporary surges in inflation, particularly in food prices, could impact consumers’ discretionary spending power. While the impact of inflation on consumers might be short-lived, other fundamental factors are casting shadows on India’s economic outlook.
While India has demonstrated resilience, Fitch’s September update of the Global Economic Outlook hints at a potential slowdown in growth during the July-September quarter. Multiple factors contribute to this expectation, including weakening exports, stagnant credit growth, and declining consumer confidence in terms of income and employment prospects, as indicated by the Reserve Bank of India’s latest bimonthly survey.
Fitch also delves into global economic conditions, noting that the world economy is anticipated to grow slightly faster in 2023 than previously projected in June. Nevertheless, the report underscores concerns arising from the deepening crisis in China’s property market and the tightening monetary policies in the US and Europe, which could potentially dampen demand.
Despite the increase in inflation, particularly in food prices, Fitch is maintaining its forecast of a 6.5% benchmark interest rate set by the Reserve Bank of India until the end of 2023. In response to rising food prices, the Indian government has taken steps such as importing larger quantities of food, temporarily waiving import duties on wheat, and restricting sugar exports. The Reserve Bank of India expects that the annual Consumer Price Index (CPI) inflation will ease in the coming months, given the short-term nature of the shocks in vegetable prices.
However, Fitch sounds a warning about the potential impact of El Nino, which could lead to inflation surpassing forecasts, although any effects on consumers and the overall economy are likely to be temporary. The report anticipates that retail inflation will reach 5.5% by the end of 2023, surpassing the previous forecast of 5%.