Why Global Ratings Agencies Are Revising India's GDP Forecast Downwards

The Covid-19 pandemic and the Russia-Ukraine war together have posed the biggest challenge to India’s growth story. Just as the economy was recovering from rounds of lockdowns and curbs that battered business, the war has now led to spiraling inflation in everything – from staples to confectionary.

India’s gross domestic product (GDP) growth in FY22 expanded 8.7 per cent from a contraction of 6.6 per cent a year ago. The January-March period was the third consecutive quarter of slowing growth, at 4.1 per cent from 5.4 per cent growth in the previous quarter.
As the war shows no sign of ending, global macro-economic situation continues to be sticky.

Domestically, India’s consumer demand is yet to pick up as private investments have not been able to match up government expenditure in generating demand. Given the implications of larger global and domestic issues on India’s GDP, several ratings agencies have revised India’s growth outlook.

Moody’s Investor Service 

The ratings agency in its latest Global Macro Outlook lowered its GDP growth forecast for India to 8.8 per cent for calendar year 2022 (CY22) from its March estimate of 9.1 per cent. It said that rising interest rates and inflation would impact India’s momentum in picking up.

“The rise in crude oil, food, and fertiliser prices will weigh on household finances and spending in the months ahead. Rate increases to prevent energy and food inflation from becoming more generalised will slow the demand recovery’s momentum,” the rating agency said.

Moody’s has also revised downwards its global growth projection to 3.1 per cent for 2022 due to the negative factors. “The main drivers of the slowing economic momentum are ongoing supply shocks that are stoking inflation and eroding consumer purchasing power, and a shift toward more hawkish monetary policy globally, accompanied by financial market volatility, asset repricing and tighter credit conditions,” it said.

International Monetary Fund 

The International Monetary Fund (IMF) projected that India would grow by 8.2 per cent in 2022-23, which is a sharp downward revision from its earlier projection of 9 per cent. Its downward revision hinges mainly on the impact of Russia-Ukraine war global supply chains and prices.   

The global growth has been projected at 3.6 per cent in 2022, down from 6.1 per cent in 2021, the IMF said in its annual World Economic Outlook report.

World Bank 

The World Bank cut India's economic growth forecast for the current fiscal year (2022-23) to 7.5 per cent from the earlier projected 8 per cent as rising inflation, supply chain disruptions and geopolitical tensions taper recovery.

"In India, growth is forecast to edge down to 7.5 percent in the fiscal year 2022/23, with headwinds from rising inflation, supply chain disruptions, and geopolitical tensions offsetting buoyancy in the recovery of services consumption from the pandemic," the World Bank said in its latest issue of the Global Economic Prospects.

This is the second time that the World Bank has revised its GDP growth forecast for India in the current fiscal 2022-23 (April 2022 to March 2023). In April, it had trimmed the forecast from 8.7 per cent to 8 per cent and now it is projected at 7.5 per cent.

Organization for Economic Cooperation and Development (OECD) 

OECD revised India’s FY23 economic growth projection to 6.9 per cent from the earlier projected 8.1 per cent. OECD’s projection is the lowest by any agency or bank and it said that it was because India has been adversely affected by Russia’s invasion of Ukraine.

“As an importer of energy, fertilisers and edible oils, India is adversely affected by the war in Ukraine. Gross domestic product (GDP) growth, which reached 8.7 per cent in FY22, is projected to slow to 6.9 per cent in FY23 and 6.2 per cent in FY24, with weaker external demand growth and tighter monetary conditions being mitigated by strong government spending and an ambitious set of measures to simplify the business environment,” it said in its June global macroeconomic report.

Fitch Ratings 

Rating agency Fitch slashed India's growth forecast for FY2022-23 to 8.5 per cent from 10.3 per cent, citing sharply high energy prices on account of the Russia-Ukraine war.

In its Global economic Outlook-March 2022, Fitch said the post-COVID-19 pandemic recovery is being hit by a potentially huge global supply shock that will reduce growth and push up inflation. "The war in Ukraine and economic sanctions on Russia has put global energy supplies at risk. Sanctions seem unlikely to be rescinded any time soon," the agency said. 

S&P Global 

S&P Global Ratings revised India's growth projection downwards to 7.3 per cent for the current fiscal year from 7.8 per cent earlier due to rising inflation and the longer-than-expected Russia-Ukraine conflict.

In its Global Macro Update to Growth Forecasts, S&P said inflation remaining higher for long is a worry, which requires central banks to raise rates more than what is currently priced in, risking a harder landing, including a larger hit to output and employment.