Fitch Revises India's GDP Projection from 6% to 6.3% for FY24

Fitch, an international credit ratings agency has revised its GDP forecast for India's financial year 2023-24 upwards, citing near-term momentum and a robust first-quarter performance.

The agency raised its projection from 6% to 6.3%, indicating a positive outlook for India's economy.

This revision comes after a previous downgrade in March due to challenges posed by high inflation, interest rates, and weak global demand. The improved forecast reflects the country's broad-based economic strength, with several sectors experiencing significant growth.

Strong Economic Indicators

Fitch highlighted India's resilient economic performance in the first quarter of 2023, reporting a 6.1% year-on-year GDP growth rate. The agency attributed this growth to various positive factors, including strong auto sales, robust PMI (Purchasing Managers' Index) surveys, and steady credit growth in recent months. These indicators demonstrate the overall health and resilience of India's economy.

Recovery in Key Sectors

Fitch emphasized the recovery and expansion of key sectors, contributing to the improved growth forecast. The manufacturing sector, which experienced two consecutive quarterly contractions, has rebounded strongly. This recovery has been supported by increased activity in construction and a notable rise in farm output. The combination of these factors has provided a boost to India's GDP growth.

Domestic Demand and Net Trade

The expenditure-based analysis of GDP growth reveals that the expansion was primarily driven by domestic demand and a favorable contribution from net trade. Strong domestic demand indicates increased consumer spending and business investment, reflecting improved confidence in the Indian economy. Net trade, which refers to the balance of exports and imports, has also played a positive role in driving economic growth. India's export performance and favorable trade balances have contributed to the overall GDP expansion.

Comparison with Previous Years

Fitch's revised forecast of 6.3% for FY23-24 represents a slight decrease from the previous fiscal year's GDP expansion of 7.2%. However, it is important to note that the exceptional growth rate of 9.1% witnessed in FY22 was largely driven by the rebound from the pandemic-induced economic contraction in FY21. Therefore, the anticipated growth of 6.3% for FY23-24 indicates a stable and positive trajectory for India's economy.

Inflation and Economic Stability

Fitch acknowledged the moderation of inflation rates since the previous forecast.This decrease in inflationary pressures has positively impacted the economy by reducing production costs, improving consumer purchasing power, and fostering a favorable business environment. The overall stability in the domestic economy, coupled with controlled inflation, has contributed to the upward revision of India's GDP forecast.

Hence, Fitch's upward revision of India's GDP forecast for FY23-24 reflects the country's strong economic recovery and positive momentum. The revised projection of 6.3% signifies India's ability to overcome challenges and maintain a steady growth trajectory. As India continues its economic resurgence, fostering domestic demand and enhancing trade competitiveness will be vital for sustained development.

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