Fitch revises its earlier FY22 GDP growth target for India to 12.8% driven by the swift pandemic response and fiscal ease.
Fitch Ratings has released its latest Global Economic Outlook (GEO) forecasts, revising FY22 GDP growth rate projections for India to 12.8% from the previous 11%. The ratings agency cites a stronger-than-expected economic recovery in Q2, 2020, plus an accommodative fiscal support as the key drivers.
India’s GDP growth levels got enough strength of late due to its boomerang in the last two quarters of 2020. Fitch expects India’s GDP levels to stay below its (earlier) pre-pandemic forecast. The FY23 GDP growth is pegged by Fitch at 5.8% (a -0.5pp downward spiral post December) for India.
India recorded a strong GDP growth recovery of 0.4% YoY in Q4, 2020, outdoing also its pre-pandemic levels (after contracting 7.3% YoY in Q3, 2020). Fitch Ratings’ high-frequency indicators suggest strong gains lined-up for the services sector, given a rising services PMI (purchasing managers’ index). This optimism is supported also by a positive manufacturing PMI in February 2021.
The Organisation for Economic Co-operation and Development’s (OECD) FY22 projection for India’s GDP is now 12.6% (a 4.7% rise in its earlier forecast). The OECD reasons robust (timely) fiscal and quasi-fiscal initiatives plus firm recoveries in manufacturing and construction sectors.
An availability deficit in auto chips globally might slug industrial production returns in India initially in 2021, Fitch’s GEO states. Fitch affirms the accommodative fiscal policy of India is set to boost spending in healthcare, infrastructure, and military. Consumption and services sector is set to get support from this short-term cyclical recovery plus the pandemic containment leading to lesser restrictions. The affected financial sector is expected to make credit access provisions a bit stiff (lowering investment spending).
Fitch isn’t anticipating a rate cut from the Reserve Bank of India (RBI) due to a positive short-term growth outlook and only a small inflationary fall. But, doing open-market operations and adopting a forward guidance on policy rates seems likely.
Optimistic outlook for the FY22 GDP growth by Fitch (12.8%) and the OECD (12.6%) affirm promising investment avenues for India.
Sources: team analysis, market data, team research, press articles