S&P cuts India’s FY23 growth forecast to 7%
S&P Global Ratings on Monday cut India’s economic growth forecast for the ongoing fiscal by 30 bps to 7% amid slowing global growth.
The rating company, however, said India would be less impacted than other countries because of resilient domestic demand, which is the main driver of economic growth.
“We do see strength in domestic demand in India. There are some indicators continuing to show fairly resilient growth. There are a couple of risks on the horizon for domestic demand. The Reserve Bank of India has been tightening policy rates since the start of this year. So, some of those effects are going to start to show up. While the government is likely to continue to prioritize capital expenditure for the next couple of budgets as well, private capex has been the missing engine of the overall growth story,” said Vishrut Rana, an economist at S&P Global Ratings. The S&P report said that the global slowdown would impact export-led economies. India’s economic output will expand by 7% in FY23 and 6% in the next fiscal year. The report further added that China’s growth is likely to remain subdued in the coming months, but it should pick up in 2023 as the government eases its covid-zero stance and the property market stabilizes. Lower global growth and higher interest rates should slow other Asia-Pacific economies next year, S&P added.
Rana anticipates that India could witness further inflationary pressure on the core side but could see easing inflationary pressure on the food and fuel side in the next six months.
“So, in India’s basket, food is nearly 40%. Wheat prices are under pressure on the upside and are unlikely to abate over the next few months. There has also been the issue of these outof-season monsoon rain, which is putting pressure on vegetable prices. We anticipate that the winter crop is likely to be a little bit better, which will help to contain the food price inflation overall. There’s also going to be some relief on the energy side, given the oil prices could stabilize,” Rana added.
India’s wholesale and retail inflation fell in October after remaining high for the most part of the year, mainly owing to supply chain disruptions following Russia’s invasion of Ukraine. CPI inflation fell to a three-month low of 6.7%, while wholesale or WPI inflation was at a 19-month low of 8.39% last month.
“There was this great upcycle that started in July 2020. July 2020 was the first month where we saw a sequential uptick in trade activity. So since then, trade has been one of these growth engines for the Asia Pacific, we’ve seen fairly resilient trade growth, including in India, and that was one of the support. But now, over the past couple of months, the sequential momentum has really eased. It’s really flattened out,” Rana said.