Fitch disappointed by India’s GDP growth rate; cuts growth forecast for FY18 and FY19

Published On: 04, Dec 2017 | Source: financialexpress.com

Rating agency Fitch on Monday has cut India’s GDP growth forecast for the current fiscal to 6.7% from 6.9% and fiscal year 2018-2019 to 7.3% from 7.4%, saying the that the economic growth has “repeatedly disappointed in recent quarters”.

Fitch has cut India’s GDP growth forecast by 20 basis points to 6.7% for FY18 and 10 basis points to 7.3%, the economic growth in the second quarter showed signs of recovery at 6.3% from a three-year low of 5.7% in the first quarter of the current fiscal year after the implementation of the ambitious direct tax regime of the GST. According to the rating agency, the 6.3% growth rate was “weaker than expected.”

Fitch growth forecast cut follows Moody’s surprise rating upgrade of India and S&P’s hold on the same. Fitch Ratings, which also currently rates India at “BBB-minus” with a “stable” outlook, in line with S&P’s ratings.

India’s GDP growth in the second quarter (Jul-Sep) accelerated to 6.3% from 5.7% in Apr-Jun and 6.1% in Jan-Mar, Central Statistics Office data showed. However, the pace of growth in Jul-Sep was still way below 7.3% recorded in the corresponding quarter a year ago.

Fitch, however, expects GDP growth to pick up in the next two years on back of gradual implementation of the structural reform agenda and higher real disposable income, PTI reported. “The Indian economy picked up in 3Q17 (July-September), with GDP growing by 6.3 per cent year-on-year, up from 5.7 per cent in 2Q17. 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 from 6.9 per cent in the September GEO,” Fitch said in its latest GEO.

The US-based ratings agency said growth has “repeatedly disappointed” in recent quarters, partly because of one-off
factors including the demonetisation programme of November 2016 and disruptions related to the implementation of the GST in July 2017.

Stating that it expects GDP growth to pick up in the next two years, Fitch said 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. The two-year bank recapitalisation plan of Rs 2.1 lakh crore, or 1.4 per cent of GDP, is likely to help address the
capital shortages that have hindered the banks’ lending capacity.

Also, the Rs 6.9 lakh crore, or 4.5 per cent of GDP, road construction plan may encourage the investment growth outlook. Inflation still running at low levels on muted food prices and rupee appreciating quite sharply against the US dollar since the beginning of this year give headroom for the RBI to keep interest rates quite low in order to help lift the economy, Fitch added.

It said pick-up in global growth has been better than expected and went on to project 3.2 per cent expansion this
year and 3.3 per cent next year. China’s slowdown is likely to be only modest, while the stabilisation in commodity prices is helping emerging markets outside China to continue to recover from the sharp downturn in 2015, it said.

China’s economy is likely to slow in 2018, but the slowdown is expected to be relatively modest with growth
easing to 6.4 per cent from 6.8 per cent this year.