NEW DELHI, June 22 (PTI): The Indian economy is expected to clock a higher growth of 6.3 per cent –one of the highest in the world — in current fiscal year aided by sustained momentum in manufacturing output and infrastructure spending, Fitch Ratings said on Thursday.
The agency has revised upwards the growth forecast from 6 per cent projected in March.
The economy also continues to benefit from high bank credit growth and infrastructure spending (with more to come from the latter), Fitch added.
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“The stronger outturn in 1Q23 (March quarter) and near-term momentum have prompted us to upgrade our FY23-24 growth forecast to 6.3 per cent – revised up from 6 per cent in March – one of the highest growth rates in the world,” said the June update to Fitch’s Global Economic Outlook.
RBI projects India’s GDP to grow 6.5 per cent in current fiscal year. Growth in March quarter was higher than expected at 6.1 per cent.
GDP growth in 2022-23 was 7.2 per cent, lower than 9.1 per cent in 2021-22.
Fitch said the numbers showed a recovery in manufacturing, a boost from construction and an increase in farm output. In expenditure terms, GDP growth was driven by domestic demand and a boost from net trade.
Recent high-frequency data point to sustained near-term momentum as highlighted by rising PMI indices, higher car sales and increased power consumption, it added.
Fitch said while inflation has eased, there are near-term upward risks in the second half of current fiscal, given the monsoon outlook and the potential impact of El Nino.
“With growth expected to moderate further, and inflationary pressures easing, we expect RBI to pause its rate cycle for the time being before cutting early next year– a change from our previous call of one more 25 bps increase to 6.75 per cent,” Fitch said.
The consumer price index based retail inflation declined to over 2-year low of 4.25 per cent in May on account of softening prices of food and fuel items.
RBI’s monetary policy committee will meet again on August 8-10 to decide on interest rates. The central bank has been tasked to keep inflation within the band of 2-6 per cent.
“Slowing inflation should also start to help consumers over time and households have now turned more optimistic about future earnings and employment,” Fitch said.
It said consumers have experienced a drop in purchasing power as inflation increased sharply in 2022 and household balance sheets have also been weakened through the pandemic. 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.
“India’s economy will be affected to an extent by slowing global trade,” Fitch added.
For 2024-25 and 2025-26 fiscals, Fitch estimated GDP growth of 6.5 per cent each.
Earlier in May, Fitch had affirmed India’s sovereign rating at ‘BBB-’, with a stable outlook, citing robust growth and resilient external finances.
With world activity holding up better than expected, Fitch has raised its forecast for global GDP growth in 2023 to 2.4 per cent, from 2 per cent estimated in March.
