S&P retains FY23 growth forecast at 7.3%; OECD at 6.9%

S&P Global Ratings on Monday retained India's economic growth projection at 7.3% in the current fiscal with downside risks and said inflation is likely to remain above the Reserve Bank of India's upper tolerance threshold of 6% till the end of 2022.

The Organisation for Economic Co-operation and Development (OECD) too stuck to its projection of 6.9% growth in India's gross domestic product (GDP) for FY23.

S&P Global Ratings Asia-Pacific chief economist Louis Kuijs said a pronounced slowdown in China was offset by a strong rebound in India as consumption, especially of services, continued to recover and investment grew rapidly.


In its Economic Outlook for Asia Pacific, S&P said India's growth next year will get support from domestic demand recovery after the Covid-19 pandemic.

"We have retained our India growth outlook at 7.3% (projected in June) for the fiscal year 2022-2023 and 6.5% for the next fiscal year, although we see the risks tilted to the downside," it said.

As per OECD, softer external demand is a factor in India's projected slowdown from 8.7% annual growth in FY22 to around 7% in FY23 and around 5.75% in FY24, but this still represents rapid growth in the context of a weak global economy.

The RBI expects the Indian economy to grow 7.2% in FY23. India's economy expanded 13.5% in the April-June quarter.

Earlier this month, Fitch Ratings lowered the growth estimate to 7% for the current fiscal from 7.8% pegged earlier while Asian Development Bank has cut the projection to 7% from 7.5% earlier.

India Ratings & Research slashed its projections to 6.9% from 7% earlier.

On inflation, S&P Global Ratings pegged the average rate in the current fiscal at 6.8% and expects it to fall to 5% in the next fiscal.

India's retail inflation rose to 7% in August and has stayed above the crucial 6% level for eight straight months.

"India headline Consumer Price Inflation (CPI) is likely to remain outside the Reserve Bank of India's upper tolerance limit of 6% until the end of 2022. That's amid substantial weather-induced wheat and rice price increases as well as sticky core inflation. And food inflation may rise again," it said.

As per the S&P report, elevated core inflation would drive up policy rates further in India, and projected policy interest rates to be 5.9% by the end of this fiscal.

S&P economist Vishrut Rana said rupee may continue to see volatility in coming days, but India has a "substantial buffer" to withstand foreign fund outflows.