S&P Global Ratings has retained India's gross domestic product (GDP) growth projection at 7.3% for the financial year 2022-23 even as it sees downside risks.

"We have retained our India growth outlook at 7.3% for the fiscal year 2022-2023 and 6.5% for the next fiscal year," the ratings agency says in its latest economic outlook for Asia-Pacific.

This comes at a time when several banks and ratings companies have slashed India’s GDP forecast for FY23. Just last week, Asian Development Bank (ADB) cut India's GDP growth forecast for 2022-23 to 7% from 7.5% estimated earlier on higher-than-expected inflation and monetary tightening. Earlier this month, India Ratings and Research (Ind-Ra) lowered India's GDP growth forecast for FY23 to 6.9% from 7%. Prior to that, Fitch Ratings slashed the country’s GDP growth forecast to 7% for FY23 from 7.8% earlier. Moody's too had cut India’s GDP growth projection to 7.6%.

S&P Global Ratings expects food inflation in India to rise. "On a sequential (month-on-month) basis, core inflation seems to have plateaued in some Asia-Pacific economies and declined in India. But in some economies it is too early to conclude that a downward trend has started. For instance, in 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 says.

Core inflation has shot up in some Asia-Pacific economies, less so in others. It has soared in Australia, South Korea, and New Zealand and has remained high in India, says the ratings agency. On the other hand, it has stayed low in China and Japan and modest in Hong Kong, Indonesia, Malaysia, Taiwan, and Thailand.

The domestic demand recovery from Covid-19 has further to go in some countries, the ratings agency says, adding that this should support growth next year in India, Malaysia, the Philippines, and Thailand.

“More domestic demand-oriented economies are less exposed to the global slowdown. We expect a larger slowdown in 2023 in South Korea and Taiwan than in India, Indonesia, and the Philippines,” says S&P Global Ratings.

A pronounced slowdown in China was offset by a strong rebound in India as consumption – especially of services – continued to recover and investment grew robustly, it says.

The ratings agency expects RBI’s monetary policy committee to hike the key policy rate by another 50 basis points to 5.9% in FY23. “In all, considering economies other than Indonesia, we expect elevated core inflation to drive up policy rates materially further in Australia, India, New Zealand, the Philippines, and South Korea. In other Asia-Pacific economies we generally expect more moderate core inflation and policy rate increases,” it says.

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