New Delhi: S&P Global Ratings retained its GDP projection of India's economic growth at 7.3 per cent for the current fiscal on Monday and said that inflation is likely to remain above the upper tolerance limit of 6 per cent till the end of 2022. In its Economic Outlook for Asia Pacific, S&P said the external environment has soured for economies in the region and higher global interest rates will continue to exert pressure on central banks in the form of capital outflows and currency depreciation.
S&P Global Ratings Asia-Pacific Chief Economist Louis Kuijs said a pronounced slowdown in China was offset by a strong rebound in India as consumption, especially of services, continued to recover and investment grew rapidly.
"We have retained our India growth outlook at 7.3 per cent for the fiscal year 2022-2023 and 6.5 per cent for the next fiscal year, although we see the risks tilted to the downside," Kuijs said.
The Reserve Bank expects the Indian economy to grow 7.2 per cent in the current fiscal (April-March). The growth last year (2021-22) was 8.7 per cent.
Indian economy expanded 13.5 per cent in the April-June quarter, sequentially higher than the 4.10 per cent growth clocked in the January-March period.
Several other agencies, including ADB, Fitch Ratings and Citigroup, have already slashed India's growth projections to either 7 per cent or below.
ADB and Fitch pegged India's growth estimate at 7 per cent, while Ind-Ra, SBI and Citigroup expect it to be 6.9 per cent, 6.8 per cent and 6.7 per cent, respectively.
S&P Economist Vishrut Rana said the rupee may continue to see volatility in the coming days, but India has 'substantial buffer' to withstand foreign fund outflows.
There have been increased capital flow pressures globally as the US Fed briskly tightens monetary policy. This has led to significant US dollar strength, and global currencies are down against the greenback.
On Monday, the rupee touched a record low of 81.52 to a dollar. The local currency has depreciated 9.4 per cent against the greenback so far this year.
"The Indian rupee has depreciated less than the basket of global currencies over the past month. There is likely to be more currency volatility as global monetary policy is still tightening. The IMF estimated that the ratio of India's foreign reserves to short-term external debt is greater than 2, which indicates a substantial buffer against capital outflows," Rana told PTI.
With regard to inflation, S&P Global Ratings pegged the average rate in the current fiscal at 6.8 per cent and projected it to fall to 5 per cent in the next financial year beginning April 2023.
"India headline Consumer Price Inflation (CPI) is likely to remain outside the Reserve Bank of India's upper tolerance limit of 6 per cent 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," Kuijs said.
Retail or consumer price inflation has remained above the RBI's upper tolerance threshold of 6 per cent for eighth months in a row and stood at 7 per cent in August. Wholesale price inflation remained in double digits for the 17th straight month at 12.41 per cent in August.
According to S&P Global Ratings, elevated core inflation would drive up policy rates further in India, and projected policy interest rates to be 5.90 per cent by the end of this fiscal.
To tame stubbornly high inflation, the central bank has already hiked benchmark interest rates by 1.40 percentage points to 5.40 per cent. In its monetary policy review on September 30, RBI is expected to hike rates by another 50 basis points to a three-year high level of 5.90 per cent.
(With PTI inputs)