Fitch Hikes India's GDP Growth Forecast By 70 Bps To 6.2% From 5.5%; Cuts China's Growth Estimates

Fitch Ratings has upgraded its estimates for India's GDP growth by 0.7% to 6.2% owing to an improvement in the employment rate and a modest pick-up in the working-age population forecast. The forecast for labour productivity is also higher, Fitch said. Earlier, the rating agency had estimated an economic growth rate of 5.5% for India.

The growth upgrade was done by Fitch in its Global Economic Outlook (GEO) report.

Fitch expects India's GDP growth rate to be at 6.3% for FY24, and maintain growth of 6.5% until the financial year 2027-28. Further, the rating agency highlighted that India's projected labour supply growth is also lower relative to 2019, due to the expected negative growth in the participation rate.

However, Fitch also pointed out that the participation rate has recovered from its pandemic slump, and it remains significantly below levels recorded in the early 2000s, partly because the employment rate among women remains very low. Date showed that India's female labour force participation came in at 27.8% during 2022-23 (July-June), improving from 24.8% in 2021-22, however, the decline in unemployment was much slower for women than compared to men. Female unemployment dropped to 2.9% in 2022-23 as against 3.3% in the previous year.

Overall, in the GEO report, Fitch has reduced its estimate of medium-term potential growth for the 10 emerging markets (EM) to 4.0% on a GDP-weighted-average basis. This is lower than its 4.3% forecast in the previous assessment in 2021.

According to Fitch, the reduction is mainly due to a large reduction of 0.7pp to the estimate of China's supply-side growth potential. Average EM10 potential growth on an unweighted basis remains unchanged at 3%, reflecting upward revisions elsewhere.

Hence, Fitch has cut the estimate for China to 4.6% from 5.3%, for Russia to 0.8% from 1.6%, for Korea to 2.1% from 2.3% and for South Africa to 1.0% from 1.2%. However, it said, "We have made large upgrades to India and Mexico, with the latter benefitting from a much better outlook for the capital-to-labour ratio. India's estimate is higher at 6.2% from 5.5% and Mexico's at 2.0% from 1.4%. "

Also, Fitch said, "But some "scarring" effects are hard to capture and we have now made additional downward "level shock" adjustments to historical estimates of potential GDP in 2020 and 2021 for Mexico, Indonesia, India and South Africa."

"Including these level shocks and changes to our forward-looking growth estimates means that the projected level of EM10 potential GDP by 2027 is 3.0pp below the path implied by extrapolating forward our pre-pandemic estimates of potential growth from 2019," the report concluded.

Currently, India's gross domestic product (GDP) grew to 7.8% in the first quarter of FY24, marking the fastest annual pace in a year. RBI has predicted real GDP growth to be at 6.5% for FY24, with Q2 growth at 6.5%, Q3 at 6%, and Q4 at 5.7%, with risks evenly balanced. While the central bank predicts real GDP growth for Q1:2024-25 at 6.6%.

India is currently the fifth largest economy in the world with a GDP of $3.730 trillion, as per Forbes.