text size:
New Delhi: Fitch Ratings on Wednesday slashed India’s economic growth forecast to 8.4 per cent for the current fiscal ending March 31, 2022, saying the rebound has been lower than expected after the second wave of COVID infections.
Fitch, which had earlier projected GDP growth of 8.7 per cent in 2021-22 (April 2021 to March 2022), however, raised the economic growth forecast for the next financial year (FY23) to 10.3 per cent from the earlier forecast of 10 per cent. . ,
The economy had contracted 7.3 per cent in the 2020-21 financial year as restrictions imposed to contain the spread of the coronavirus halted business activity.
“India’s economy staged a strong rebound in 3Q21 (July-September 2021) from a delta variant-induced sharp contraction,” Fitch said in its Global Economic Outlook (GEO).
GDP grew at a sharp 11.4 per cent compared to the April-June quarter, when it had fallen by 12.4 per cent.
“However, our September GEO had a higher-than-expected bounce. The rebound in the services sector was weaker than expected,” it said.
Nevertheless, business surveys and dynamics data point to a strong pick-up in activity in 4Q21 (October-December 2021). Growth in the manufacturing sector has been constrained by supply constraints, but supply constraints are expected to ease in the coming months.
Carmakers are indicating a pick-up in production while domestic coal production is increasing to make up for the shortfall.
Fitch said it expects the services sector to show a strong reading amid the lifting of most restrictions.
“We have reduced our GDP growth forecast for FY22 (the fiscal year ending March 2022) to 8.4 per cent (-0.3pp). The pace of GDP growth should have peaked at 10.3 per cent (+0.2pp) in FY13, fueled by consumer-led recovery and easing of supply disruptions,” it said.
The growing portion of the population being fully vaccinated reduces the risk of future disruptive outbreaks and will support consumer confidence.
But, “the risk for recovery remains, especially in the near term, given that less than a third of the population is fully vaccinated. The newly discovered Omicron variant adds to the risk,” it said. said.
On inflation, Fitch said the rise in prices was largely driven by domestic factors. Inflation has consistently hovered above the upper-band of the Reserve Bank of India’s 2 per cent-6 per cent target since the start of the pandemic, with food prices initially boosted by pandemic-related disruptions in local supply chains.
Core price pressures (excluding food and energy) are slowly building up: core inflation has been around 6 percent in recent months.
“However, unlike many other emerging indicators (EM), food inflation has moderated significantly over the past months, helping to contain overall inflationary pressures. We expect headline inflation to average 4.9 per cent in 2022 and 4.2 per cent in 2023, moderate food inflation to 5 per cent in 2021,” the rating agency said.
Fitch expected the RBI to start raising interest rates by 75 basis points in 2022, starting in 2Q22.
“A still large negative output gap and inflation close to the midpoint target should allow RBI to lag behind many other EM peers in the interest rate-normalization process. However, the central bank will continue with the liquidity clearance auction to infuse the excess liquidity in the banking system.”
Read also: RBI does not change policy rates, retains GDP estimate for FY22 at 9.5%
subscribe our channel youtube And Wire
Why is the news media in crisis and how can you fix it?
India needs independent, unbiased, non-hyphenated and questionable journalism even more as it is facing many crises.
But the news media itself is in trouble. There have been brutal layoffs and pay-cuts. The best of journalism is shrinking, crude prime-time spectacle.
ThePrint has the best young journalists, columnists and editors to work for it. Smart and thinking people like you will have to pay a price to maintain this quality of journalism. Whether you live in India or abroad, you can Here,