New Delhi, May 22: Global rating agency Fitch Ratings on Thursday raised India's GDP growth potential by 0.2 percentage points to 6.4 per cent over the next five years, on the back of a sharper rise in the country’s labour force participation rate in recent years.

Fitch highlighted that the revised estimate for India shows a stronger contribution from labour inputs, mainly total employment, rather than labour productivity.

At the same time, the global rating agency has scaled down China's growth projection by 0.3 percentage points to 4.3 per cent from 4.6 per cent earlier.

The changes are part of Fitch's revised assessment of potential GDP growth for 10 emerging market economies over the next five years.

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."

TFP, which stands for Total-factor productivity (TFP), also called multi-factor productivity, is usually measured as the ratio of aggregate output (GDP) to aggregate inputs. Under some simplifying assumptions about the production technology, growth in TFP becomes the portion of growth in output not explained by growth in traditionally measured inputs of labour and capital used in production.[

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.

“Our revised estimate implies that there is a stronger contribution from labour inputs (total employment) rather than labour productivity. India’s labour force participation rate has increased sharply in recent years; we expect it will continue to increase but at a slower pace,” Fitch Ratings noted.

“Our update of potential growth in emerging markets is now 3.9 per cent, representing a further, albeit marginal drop from the 4 per cent estimate we published in November 2023. This mainly reflects lower potential growth in China,” said Robert Sierra, Director, Fitch Ratings.

China’s lower potential, the global ratings agency, can be attributed to a weaker capital deepening and steeper fall in labour force participation, the rating agency said.

India continues to remain the world’s fastest growing major economy and the only country expected to clock over 6 per cent growth in the next two years, according to an IMF report released last month. The IMF has trimmed the growth forecast for over 120 countries.

--IANS

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