Workers assemble Royal Enfield motorcycles inside a factory in Tamil Nadu. Photo: AFP / Arun Sankar

Many ratings agencies are having another look at their earlier projections for India’s gross domestic product growth after disruptions caused by Russia’s invasion of Ukraine.

The latest to do so is ICRA, which has reduced its forecast for year-on-year growth for Indian Gross Domestic Product in FY23 to 7.2% from 8%. The ratings agency cited high commodity prices, supply chain disruptions due to the Ukraine crisis and the lockdowns in parts of China for scaling down its forecast.

ICRA Chief Economist Aditi Nayar also said rising fuel costs and higher prices for household items like edible oil is likely to compress disposable incomes in India’s middle and lower-income families. This could hamper a demand revival, she said.

She expects a K-shaped recovery to continue with the formal sector gaining market share in FY23. Former World Bank Chief Economist Kaushik Basu said India’s overall macroeconomic situation was in recovery mode, but expressed concern that growth was concentrated at the top end.

He said “the bottom half of India” was in recession and lamented the country’s policies over the last few years as being largely focused on big businesses.

Fitch Ratings last week went for a much steeper downgrade of 180 basis points to 8.5%, citing high energy prices. The extent of the downgrade was second only to Germany among major economies.

It expects India’s inflation to hit 7% on high fuel prices. After a four-month hiatus, India’s oil marketing companies are now increasing gasoline and diesel prices marginally on almost a daily basis.

On Wednesday, prices were hiked 80 paise a liter – the eighth hike in nine days. The cumulative hike now stands at 5.60 rupees per liter. The price of a cooking gas cylinder has also increased by 50 rupees.

Fitch, however, said the Indian economy had recovered from the Omicron wave with little damage, unlike the earlier two waves of the Covid-19 pandemic.

The United Nations too has downgraded India’s projected economic growth for 2022 by more than 2% to 4.6% and attributed the decrease to the ongoing war in Ukraine. It expects New Delhi to face restraints on energy access, reflexes from trade sanctions, food inflation, tightening policies and financial instability.

The UN Conference on Trade and Development had earlier projected that India would grow by 6.7% in 2022. Soaring food and fuel prices will have an immediate effect on the most vulnerable in developing countries, resulting in hunger and hardship for households who spend the highest share of their income on food.

But the loss of purchasing power and real spending will ultimately be felt by everyone, the report said.