NEW DELHI: Global rating agency Fitch Ratings has raised India’s medium-term growth potential by 0.2 percentage points to 6.4 per cent, while it has reduced China’s growth projection by 0.3 per cent to 4.3 per cent from 4.6 per cent.
The changes are part of Fitch’s revised assessment of potential GDP growth for 10 emerging market economies over the next five years. In its latest report, Fitch said, “Our estimate of India’s trend growth is slightly higher at 6.4 per cent, compared with 6.2 per cent previously. We think TFP growth will slow from recent years to be in line with its long-run average of 1.5 per cent.”
The revision comes on the back of a sharper rise in India’s labour force participation rate in recent years. While the agency expects this growth to continue, it may happen at a slower pace going forward. Fitch highlighted that the revised estimate for India shows a stronger contribution from labour inputs, mainly total employment, rather than labour productivity.
The rating agency has also made changes to its projections based on a revised assessment of labour force data. It noted that the contribution from the participation rate has been revised upwards, while the projected contribution of capital deepening has been lowered.
Another key factor in the agency’s outlook is Total Factor Productivity (TFP). Fitch believed TFP growth in India will slow down from recent years and align with its long-term average of 1.5 per cent.
In contrast, the outlook for China has turned slightly less optimistic. The agency has lowered China’s supply-side GDP growth potential to 4.3 per cent from 4.6 per cent. According to the report, this is due to several reasons, including weaker capital deepening. The ongoing adjustment in the property market has negatively affected overall investment, which has played a role in the downgrade.
Additionally, Fitch noted a slightly steeper decline in the projected labour force participation rate in China and marginally lower TFP growth, which is now estimated in line with the five-year average ending in 2023. Fitch’s latest assessment shows a shifting growth dynamic among major emerging economies, with India gaining slightly more ground as China sees a modest slowdown in its economic potential. (ANI)
