Fitch Ratings on Thursday raised its forecast for India’s economic growth to 6.3% for 2023-24 from 6% it had predicted previously, citing broad-based strength seen in the economy in metrics such as credit growth and auto sales in recent months.
The global rating major also said it now expects the Reserve Bank of India to maintain its pause on interest rate increases and start cutting rates early next year, shifting from its earlier forecast of at least another 0.25% rise in rates.
“India’s economy has been showing broad-based strength – with GDP up by a higher than expected 6.1% year on year in Q1 of 2023 and auto sales, PMI [Purchasing Managers’ Indices] surveys and credit growth remaining robust in recent months – and we have raised our forecast for the fiscal year ending in March 2024 by 0.3 percentage points to 6.3%,” Fitch said in its latest Global Economic Outlook that also upgraded global GDP growth forecasts for 2023 to 2.4% from 2% predicted in March.
Fitch also took note of an uptick in power consumption in the Indian economy, which “continues to benefit from high infrastructure spending” and said the estimated 6.3% GDP growth this fiscal will be “one of the highest growth rates in the world”.
“India’s economy will be affected to an extent by slowing global trade. Domestically the full impact of 250bps (basis points) of monetary tightening is still to be felt. 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,” the outlook cautioned. One basis point equals 0.01%.
“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,” it underlined.
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