S&P Global cuts India’s GDP forecast by 30 bps to 7% for FY23

The rating agency S&P Global on Monday slashed India’s gross domestic product (GDP) forecast by 30 basis points (bps) to 7%. Earlier the rating agency had projected the country’s economic growth to be at 7.3% for the current fiscal year. For FY24, the rating agency has pegged the country’s economic growth at 6%. 

In its report titled, ‘Global Slowdown Will Hit, Not Halt, Asia-Pacific Growth’ the rating agency said that the global slowdown will have less impact on domestic demand-led economies such as India, Indonesia, and the Philippines. “India's output will expand 7% in the fiscal year 2022-2023 (ending in March 2023) and 6% in the next fiscal year, by our estimates,” the rating agency says.

Projections by S&P Global are in line with GDP estimated by other global agencies like Deloitte India, Moody's, IMF, and Reserve Bank of India. Deloitte India has slashed the country’s economic growth to 6.5% to 7.1% for FY23, citing inflation to be main concern for the policymakers. India's headline inflation has risen by 1.9 percentage points since April 2022. It remains above the Reserve Bank of India's (RBI) tolerance range of 4 (+/-2)% over the past 9 months. 

The US-based global ratings agency Moody's Investors Service this month revised India's growth projections to 7% from 7.7% earlier due to the weak rupee and high oil prices. International Monetary Fund (IMF) has also slashed India’s GDP growth forecast for 2022 by 1.4 percentage points since April to 6.8% on a weaker-than-expected recovery in the second quarter and subdued external demand.

Moreover, the Reserve Bank of India slashed its economic growth forecast for FY23 to 7% owing to persistent geopolitical tensions, high-interest rates by global banks and soaring inflation across the country, which has continued to remain above the RBI’s upper tolerance level of 6%.The apex bank had previously estimated the country’s economic growth to be at 7.2% for FY23.

Meanwhile, the S&P Global report further says that the foreign reserves have fallen in Asian emerging markets and will be vulnerable to foreign exchange (forex) stress in 2023 owing to the high repo rates by the U.S. and significant current account deficits in some countries. In India, the trade balance for the first nine months of 2022 witnessed a decline of 3.6% of the country’s GDP. “In India, the decrease in foreign reserves of $73 billion through August was far and above losses attributable to valuation changes (of $30 billion). This implies that the central bank has made sizable interventions to support the Indian rupee,” the rating agency says. 

“The fact that interest rates are rising faster in the U.S. than in Asia-Pacific has pulled capital out of the region. We estimate that net financial outflows rose by $127 billion in the first eight months of 2022 in six large Asian emerging market economies compared with a year earlier, to $400 billion,” the rating agency says.

Meanwhile, the GDP forecast in the Asia-Pacific region excluding China is expected to slow to 3.9% in 2023, from 4.8% in 2022. It is expected to pick up its pace to 4.4% in 2024. 

Louis Kuijs, chief economist of S&P Global Ratings for the Asia-Pacific region says, “Soft global demand will deplete growth in export-driven economies, such as South Korea and Taiwan. China's short-term outlook remains poor. Organic growth remains weak amid persistent, widespread COVID disruptions. But growth should pick up in 2023 as the COVID stance and property downturn ease."