New Delhi— Global credit rating agency Fitch Ratings has revised India’s potential GDP growth upward to 6.4% over the next five years, citing a sharp increase in the country’s labor force participation rate.
This marks a 0.2 percentage point increase from its previous estimate of 6.2%. Fitch noted that the upward revision is primarily driven by stronger labor input—specifically total employment—rather than gains in labor productivity.
In contrast, Fitch downgraded China’s growth potential by 0.3 percentage points to 4.3%, citing a decline in capital deepening and a steeper drop in labor force participation.
The updates are part of Fitch’s revised long-term economic outlook for 10 major emerging market economies.
“Our estimate of India’s trend growth is now slightly higher at 6.4%, up from 6.2%,” Fitch said. “We expect total-factor productivity (TFP) growth to ease from recent highs and align with its long-term average of 1.5%.”
TFP, or total-factor productivity, measures output relative to combined labor and capital inputs. It accounts for efficiency gains not directly explained by traditional production factors.
Fitch’s assessment reflects an upward revision in labor force participation but a downward adjustment in the contribution from capital investment.
“India’s labor force participation has increased significantly in recent years, and while we expect this trend to continue, the pace may moderate going forward,” the agency noted.
Globally, Fitch revised its overall potential growth estimate for emerging markets to 3.9%, down slightly from its November 2023 projection of 4%, largely due to China’s slower growth outlook.
Despite global headwinds, India remains the world’s fastest-growing major economy. According to the International Monetary Fund (IMF), it is the only major economy projected to maintain growth above 6% over the next two years. In contrast, the IMF has trimmed growth forecasts for more than 120 countries. (Source: IANS)
