India is set to remain a relative growth outperformer in the current and next financial years. Strong consumption demand, healthy balance sheets of corporates and banks, and infrastructure focus of the government will support the economy, according to a report by rating agency Crisil.
“India’s long-term growth trend is diverging from those of advanced economies. But, its growth cycles have become remarkably synchronised with the latter since the 2000s. This time will be no different. The deceleration of major developed economies underway will create downside risks for CRISIL’s India growth outlook of 6.5 per cent for fiscal 2024. The lagged impact of tightening monetary policy domestically and globally, will add to it,” Crisil said in the report.
It also said rising interest rates, growing European energy insecurity, lingering effects of Covid-19 and the Russia-Ukraine war are creating headwinds to growth globally, especially in advanced economies. As central banks aggressively raise rates to fight inflation, countries will find it hard to stave off a sharp downturn in activity.
“According to S&P Global, global growth is set to decline from 3.1 per cent this year to 2.4 per cent in 2023, led by slower growth in advanced economies, especially eurozone and the United States (US),” Crisil added.
Policy tightening and weakening growth momentum in advanced economies have already started to impact India in the form of slowdown in exports and FPI outflows. Since monetary policy actions work with a lag, the effects of rate hikes in advanced economies are also going to become more pronounced next year, Crisil said.
In the base case, S&P Global projects the US economy to slow to 0.2 per cent in 2023 from an estimated 1.6 per cent this year. The eurozone is set to see a sharper fall to 0.3 per cent from 3.1 per cent, given the energy crisis due to the Russia-Ukraine conflict.
“Moreover, there are significant downside risks to these projections, which could spell contraction in the US and eurozone economies by 0.3 per cent and 1.3 per cent in 2023 if they materialise. In a highly globalised world with growing entanglement of real and financial flows, India will not escape unscathed as these countries slow down, given its high cyclical synchronisation with them,” Crisil added.
It added that several factors could lessen the blow for India. The domestic financial sector and corporate balance sheets are in a good health. Corporates have been deleveraging: the median gearing ratio of the CRISIL Ratings portfolio is expected to touch a decadal low of less than 0.5 this fiscal. Hence, strong balance sheets are expected to cushion India Inc through a period of global uncertainties.
“CRISIL also expects gross non-performing assets of the banking sector to improve 90 bps to 5 per cent this fiscal, thanks to post-pandemic recovery and higher credit growth. For non-banks, too, GNPA is expected to improve 50 bps to 3 per cent. At the same time, the government’s focus on capital spending should continue to support investment and consumption demand in the economy,” Crisil said.
It added that in sum, while the Indian economy will undoubtedly feel the ripples of slowdown emanating from the advanced economies, a line up of favourable domestic factors should help it steady its ship.
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