American credit rating agency, Fitch downgraded India’s GDP growth for the next financial year FY23. India’s growth will reach 8.5% from 10.3% due to the high energy prices as a result of the Russia-Ukraine War.
For the current fiscal, Fitch has raised its assessments 8.7% to 60 basis points. It is higher than its estimations in December. However, the change in growth estimations occurred after the economy survived the 3rd wave without major damage, said a source.
The War between Ukraine and Russia and economic sanctions on Russia have kept global energy supplies at risk. A source said as Russia supplies nearly 10% of the world’s energy, natural gas (17%), Oil (12%). Due to oil and gas price increases, energy prices are inevitable to rise, reducing real incomes for consumers.
According to the agency, Indian GDP growth reached more than 6% in the December quarter but remain well below the pre-pandemic trend implied by the growth in GDP. In contrast to the previous COVID waves of 2020 and 2021, the Indian economy appeared to have pivoted out the Omicron wave with few problems.
According to Fitch, inflation will peak over 7% by the end of 2022, before easing gradually thereafter. Throughout the forecast horizon, the agency expects inflation to remain elevated at 6.1% annually in 2021 and 5% annually in 2022. Fuel prices have remained flat over the past weeks. Although oil companies are expected to ultimately pass on higher oil prices to retail fuel prices (with the government offsetting some of this by lowering excise duties),” said a source.