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Fitch Reduces India’s Growth Forecast For 2022-23 To 8.5% At High Energy Prices


Russia supplies about 10 percent of the world’s energy.

New Delhi:

Rating agency Fitch on Tuesday cut India’s growth forecast for the next fiscal to 8.5 percent from 10.3 percent, citing sharply higher energy prices as a result of the Russo-Ukrainian war.

With the Omicron wave subsiding rapidly, containment measures have been scaled down, setting the stage for an increase in GDP growth momentum in the June quarter of this year, the agency said. It has revised its GDP growth forecast for the current fiscal by 0.6 percentage points to 8.7 percent.

“However, we have lowered our growth forecast for FY 2022-2023 to 8.5 per cent (-1.8 pp) at sharply higher energy prices,” Fitch said while reviewing its inflation forecast. In its March 2022 Global Economic Outlook, Fitch said the post-COVID-19 pandemic recovery was being hit by a potentially huge global supply shock that would slow growth and raise inflation. “The war in Ukraine and the economic sanctions on Russia have put global energy supplies at risk. The sanctions are unlikely to be lifted in the near future,” the agency said.

Russia supplies about 10 percent of the world’s energy, including 17 percent of its natural gas and 12 percent of oil.

“Rising oil and gas prices will add to industry costs and reduce real consumer incomes … Higher energy prices are justified,” Fitch said, lowering its world GDP growth forecast by 0.7 percentage points to 3.5 percent.

Noting that India’s GDP growth was very strong in the December quarter, the agency said GDP was more than 6 per cent above its pre-pandemic levels although still well below its implied pre-pandemic flow.

“High -frequency data shows that the Indian economy has weathered the Omicron wave with little damage – very different from the previous two coronavirus waves in 2020 and 2021,” he said.

Fitch is now seeing inflation getting stronger, peaking above 7 percent in the December 2022 quarter, before gradually easing.

The agency expects inflation to remain high across the forecast horizon, at 6.1 percent annual average in 2021 and 5 percent in 2022.

“Local fuel prices have not changed over the past few weeks, but we assume that oil companies will eventually lower higher oil prices to retail fuel prices (with some offset from excise duty reductions by the government),” he added.

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