Tuesday brought some good news for the Indian economy as World Bank raised the forecast to 6.9 per cent from 6.5 per cent while Fitch maintained the growth estimate at 7 per cent. This is the first upgrade by any agency for current fiscal.

Interestingly, both of them highlighted that the July-September quarter (Q2) economic growth rate was better. On November 30, the National Statistical Office (NSO) said the Indian economy grew 6.3 per cent during Q2. Though it is lower than Q1 (13.5 per cent) and also of corresponding quarter (8.4 per cent) of the last fiscal, still global agencies define present rate better.

The World Bank has said India’s economy has demonstrated resilience despite a challenging external environment. In its latest India development update titled ‘Navigating the Storm’, it found that while the deteriorating external environment will weigh on India’s growth prospects, the economy is relatively well positioned to weather global spillovers compared to most other emerging markets.

Resilient economy

“India’s economy has been remarkably resilient to the deteriorating external environment, and strong macroeconomic fundamentals have placed it in good stead compared to other emerging market economies,” Auguste Tano Kouame, World Bank’s Country Director in India, said. However, continued vigilance is required as adverse global developments persist, he added.

Though the bank has revised its growth projection upward from its previous estimate, still, it says the impact of a tightening global monetary policy cycle, slowing global growth and elevated commodity prices will mean that the Indian economy will experience lower growth in FY23 compared to 2021-22. “Despite these challenges, the update expects India to register a strong GDP growth and remain one of the fasted growing major economies in the world, due to robust domestic demand,” it said.

The report forecasts that the economy will grow at a slightly lower rate of 6.6 percent in FY24. However, it argues that the economy is relatively insulated from global spillovers compared to other emerging markets. This is partly because India has a large domestic market and is relatively less exposed to international trade flows. The report finds that while a 1 percentage point decline in growth in the US is associated with a 0.4 percentage point decline in India’s growth, the effect is around 1.5 times larger for other emerging economies. Analysis for growth spillovers from the EU and China also yields similar results.

‘Fastest among EMs’

Meanwhile, Fitch said the growth rate of 6.3 per cent beat the expectation and given the stronger-than-expected outturn, it maintained growth forecast to 7.0 per cent in FY23. “India is expected to record one of the fastest growth rates among emerging markets,” the agency said while adding that the country is shielded to some extent from global economic shocks given the domestically focused nature of its economy, with consumption and investment making up the bulk of the country’s GDP.

However, it said that weakness in the rupee against the US dollar is adding to inflationary concerns at the RBI given that a third of the CPI basket consist of imports. “We now expect the RBI to increase policy rates to 6.15 per cent by December and to then hold this rate throughout 2023,” it said.