Global slowdown: S&P hopeful, but cuts India’s growth forecast in FY23 to 7%
Virendra Pandit
New Delhi: With shadows of global slowdown advancing across the planet like an eclipse, S&P Global Ratings on Monday cut the forecast for India’s economic growth in 2022-23 from 7.3 percent earlier to 7 percent now, but said the domestic demand-led economy, now the fifth largest in the world, will be less impacted by the across-the-world slowdown.
In September, the rating agency projected the Indian economy’s growth at 7.3 percent in the current financial year (2022-23) and 6.5 percent in the next fiscal year (2023-24).
“The global slowdown will have less impact on domestic demand-led economies such as India… India’s output will expand 7 percent in the fiscal year 2022-2023 and 6 percent in the next fiscal year,” according to S&P Global Ratings Asia-Pacific Chief Economist Louis Kuijs.
Sensing India’s relatively better performance among world economies, foreign portfolio investors (FPIs) flocked to India in August and September, buying shares worth RS. 31,630 crore.
The Indian economy grew by 8.5 percent in 2021-22. In its quarterly economic update for Asia-Pacific, S&P said in some countries the domestic demand recovery from the Covid pandemic has further to go and should support growth next year in India.
The rating agency projected inflation to average 6.8 percent this year and RBI’s benchmark interest rate to rise to 6.25 percent by March 2023. RBI has already hiked the interest rate by 1.9 percentage points to a 3-year high of 5.9 percent to control the price rise.
After remaining high mostly of the current year in the wake of supply chain disruptions because of the outbreak of the Russian-Ukraine war in February 2022, India’s wholesale and retail inflation fell in October.
Retail (or CPI) inflation fell to a 3-month low of 6.7 percent, while wholesale (WPI) inflation was at a 19-month low of 8.39 percent last month.
About the exchange rate, S&P said foreign reserves have fallen in Asian emerging markets, even after adjusting for valuation changes. For India, it pegged the exchange rate at Rs 79.50 to a US dollar by March-end, as against the current Rs 81.77.
“In India, the decrease in foreign reserves of USD 73 billion through August was far and above losses because of valuation changes (of USD 30 billion). This implies that the central bank has made sizeable interventions to support the Indian rupee,” S&P said.
Apart from S&P, some other agencies also slashed India’s economic growth projections for the current fiscal year, citing a slowdown in the global economy, and the Russia-Ukraine war, besides rising interest rates and inflation domestically.
While the World Bank cut its growth estimate for India by 100 basis points to 6.5 percent, IMF has trimmed it to 6.8 percent from 7.4 percent.
The Asian Development Bank, too, has cut its projection to 7 percent from 7.5 percent earlier. RBI also expects economic growth at 7 percent in the current fiscal year.
About the Asia-Pacific region, S&P said while China’s growth could remain subdued in the coming months, it may pick up in 2023 as the government eases its Covid-19 stance and the property market stabilizes.
Lower global growth and higher interest rates might slow other Asia-Pacific economies next year. But S&P expects GDP growth to stay healthy, Kuijs said.
