India Ratings & Research (Ind-Ra), a wholly owned subsidiary of Fitch Group, lowered India’s Gross Domestic Product (GDP) growth forecast for fiscal year 2022-23 (FY23) by 10 basis points to 6.9% from 7.0% previously.
i.Despite stronger-than-expected growth in Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF) in the April-June quarter (Q1 FY23), Ind-Ra anticipates Government Final Consumption Expenditure (GFCE) to slowdown and net exports (exports-imports) to decrease in FY23.
- It projects quarterly growth of 7.2%, 4%, and 4.1% in Q2 FY23, Q3 FY23, and Q4 FY23, respectively.
ii.With this, Fitch and Ind-Ra join analysts like SBI Economic Research Division “SBI Ecowrap” (6.8%) in reducing their growth projection.
iii.The Reserve Bank of India (RBI) forecasted that growth will decrease to 6.7% from 7.4% in FY24 (2023–24) as well.
iv.In August 2022, the Government announced that India’s economy grew by 13.5% in Q1 FY23, the fastest in the last four quarters.
Ind-Ra Estimates India’s CAD Widened to 3.4% Of GDP in Q1FY23
According to Ind-Ra, the Current Account Deficit (CAD) increased from USD 13.4 billion (1.5% of GDP) in the January-March quarter (Q4 FY22) to USD 28.4 billion (3.4% of GDP) in the April-June quarter (Q1 FY23).
- In terms of GDP share, this would be the highest in 36 quarters, and in terms of absolute value, it would be the highest in 38 quarters.
Current Account Deficit (CAD)
A CAD is the difference between the amount of money coming in from exports and the amount leaving the country through imports. A CAD shows that a nation is importing more than it is exporting.
- It implies a higher demand for dollars, which would cause the value of the rupee to decline.
i.India had a surplus of USD 6.6 billion (0.9% of GDP) in the April-June quarter (Q1) of FY22.
ii.According to Ind-Ra, despite reaching a record high of USD 121.2 billion in Q1 FY23, Merchandise Exports are expected to slow to USD 104.2 billion in Q2 FY23, a 1.40% increase.
iii.The International Monetary Fund (IMF) reduced its forecast for Global GDP growth to 3.2% in 2022 from 3.60%, in its July 2022 update to the World Economic Outlook.
iv.Furthermore, the GDP projections for some of India’s major export destinations, including the United States (US), the Eurozone, and China, have been revised in a downward direction.
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Fitch Ratings, a global ratings agency, in its Global Economic Outlook–September 2022 special report, lowered India’s economic growth forecast for fiscal year 2022–23 (FY23), as measured by GDP to 7%, from its June 2022 forecast of 7.8%.