Global rating firm Fitch Ratings has cut India’s gross domestic product (GDP) growth forecast for the fiscal year ending March 2018 (FY18) to 6.7 per cent from its earlier projection of 6.9 per cent in September, saying that the rebound in the economy was “weaker than expected”.
“The Indian economy picked up in the September quarter, with GDP growing by 6.3 per cent year-on-year, up from 5.7 per cent in the June quarter. However, the rebound was weaker than we expected, and we have reduced our growth forecast for the fiscal year to end-March 2018 (FY18) to 6.7 per cent,” Fitch said in its latest ‘Global Economic Outlook’.
The cut in GDP growth estimate by Fitch has come after US rating firm Moody’s upgraded India’s sovereign rating for the first time in 13 years recently, saying growth prospects have improved with continued progress on economic and institutional reforms. Standard & Poor’s, however, retained India’s sovereign rating, pointing out certain parameters which, if India improves, may lead to an upgrade.
Fitch also slashed the FY19 forecast to 7.3 per cent from 7.4 per cent. “Growth has repeatedly disappointed in recent quarters, although this has partly reflected one-off factors including the demonetisation programme of November 2016 and disruptions related to the implementation of the introduction of the Goods and Services Tax in July 2017,” Fitch said on Monday.
Fitch said it expects GDP growth to pick up in the next two years. “Gradual implementation of the structural reform agenda is expected to contribute to higher growth, as will higher real disposable income. Recent moves by the government should help support the growth outlook and enhance business confidence,” it said.
First, a two-year large bank recapitalisation plan (worth Rs 2.1 lakh crore or 1.4 per cent of GDP) for state banks was announced, it said. “The details are not clear yet, but the package is likely to help address the capital shortages that have hindered the banks’ lending capacity. Second, the government unveiled a substantial road construction plan (worth Rs 6.9 lakh crore or 4.5 per cent of GDP over a five-year horizon). This may encourage the investment growth outlook,” Fitch said.
According to the rating firm, inflation is still running at low levels, weighed down by muted food price inflation. The rupee has also appreciated quite sharply against the US dollar since the beginning of this year despite a narrowing interest rate differential between the US Fed policy rate and the Reserve Bank of India’s (RBI).