Fitch slashes India's FY23 GDP growth forecast to 7% citing inflation levels

Fitch Ratings on Thursday slashed its projection of India’s economic growth to 7 per cent for the current fiscal, citing elevated inflation levels and higher interest rates. 

The rating firm, which had in June projected India’s GDP to grow by 7.8 per cent in 2022-23, has also now forecast a slowdown in growth to 6.7 per cent in FY24 from its earlier estimate of 7.4 per cent. In its Global Economic Outlook September 2022 released on Thursday, the rating agency said the GDP growth of 13.5 per cent in April-June, as per official data, was below its June expectation of 18.5 per cent increase. 

“We expect the economy to slow given the global economic backdrop, elevated inflation and tighter monetary policy,” it said. “Inflation moderated in August as crude oil prices eased, but the risk to food inflation persists given negative seasonality towards the end of this year,” said the company.

The wholesale-price-based inflation softened to 11-month low of 12.41 per cent in August, even though retail inflation inched up to 7 per cent. 

Other agencies downgrade, too

Fitch joins other agencies who have downgraded India’s economic growth forecast following a below-expected 13.5 per cent expansion in April-June. Moody’s Investors Service expects India’s GDP growth to slow from 8.3 per cent in 2021 to 7.7 per cent in 2022 and to decelerate further to 5.2 per cent in 2023. 

Citigroup has sharply cut its FY23 growth projection to 6.7 per cent from 8 per cent earlier while Goldman Sachs revised it to 7 per cent from 7.2 per cent. SBI expects 6.8 per cent growth from April 2022 to March 2023 (FY23) and India Ratings and Research (Ind-Ra) pegs it at 6.9 per cent. 

The Reserve Bank of India (RBI) expects the economy to grow 7.2 per cent in the current fiscal year. 

Fitch said core inflation, which excludes food, fuel and light, remained elevated at 6 per cent while inflation expectations have also stayed high. 

With agency inputs