India’s medium-term growth estimate has been revised upward by 70 basis points to 6.2 per cent from 5.5 per cent by Fitch Ratings on Monday. According to Fitch Ratings, the positive adjustment contrasts with the US credit rating agency's reduction in the estimate for 10 emerging markets (EMs), primarily because of the influence of China. China now averages at 4 per cent on a GDP weighted-average basis.
In its report Fitch Ratings said, “We have made large upgrades to India and Mexico, with the latter benefitting from a much better outlook for the capital to labour ratio. India’s estimate is higher at 6.2 per cent from 5.5 per cent and Mexico’s at 2.0 per cent from 1.4 per cent.”
Fitch attributed the higher growth prediction for many countries to the rapid rebound in labour force participation rates, especially after substantial declines in 2020.
Fitch also cut Russia's potential growth, by 0.8pp to 0.8 per cent. It made upward revisions to Brazil, India, Mexico, Indonesia, Poland, and Turkey relative to its previous estimates.
The agency attributed the higher growth forecast for India to a swift recovery in labour force participation rates, following significant declines in 2020.
"We have increased India's estimate by 0.7pp while those of Brazil, Turkey and Indonesia are all now higher by 0.2pp," it said. In India's case, "potential growth has increased by 0.7pp to 6.2 per cent given an improvement in the employment rate and a modest increase in the working-age population forecast," it said, adding India's labour productivity forecast is also higher. It defined the medium term as a period from 2023 to 2027.
Fitch mentioned that India's projected labour supply growth is lower relative to 2019 given the expected negative growth in the participation rate. While the participation rate has recovered from its pandemic slump, it remains significantly below levels recorded in the early 2000s, partly as the employment rate among women remains very low.