Meghna Barik, Pune
Fitch Ratings has maintained its growth forecast for India’s current fiscal year at 6.3 percent, citing the nation’s remarkable economic resilience, despite the imposition of tighter monetary policies and a decline in exports. The Indian economy’s robust performance during the April-June quarter, with a growth rate of 7.8 percent, can be attributed to the thriving service sector and a strong demand.
While India continues to surpass other regional economies in terms of growth, Fitch has also revised its inflation projections upward due to the looming threat of El Niño. The agency now anticipates a moderation in the pace of growth during the July-September quarter, driven by weakening exports, stagnant credit growth, and diminishing consumer confidence in terms of income and employment prospects, as indicated by the Reserve Bank of India’s bimonthly survey.
Fitch noted that while inflation may experience temporary spikes, especially in food prices, it could temporarily limit discretionary spending among households. Moreover, fundamental factors beyond inflation are exerting pressure on the Indian economy. The country is not immune to the global economic slowdown and is grappling with the delayed impact of the Reserve Bank of India’s 250-basis-point interest rate hikes over the past year. Additionally, concerns about a poor monsoon season could complicate the RBI’s efforts to control inflation.
Annual headline inflation surged to 6.8 percent in August, primarily due to sharp increases in the prices of essential commodities like tomatoes. Fitch, however, maintained its benchmark interest rate forecast for the RBI at 6.5 percent by the end of the calendar year. To address rising food prices, the government has taken measures such as importing larger quantities of food items, temporarily waiving import duties on wheat, and restricting sugar exports.
Despite these inflationary concerns, Fitch acknowledged the potential for inflation to be moderate in the coming months given the short-term nature of vegetable price shocks. Nevertheless, the threat of El Niño remains a wildcard, which could lead to inflation exceeding forecasts. As a result, Fitch now anticipates retail or CPI inflation to reach 5.5 percent by the end of 2023, up from its previous estimate of 5 percent.