Published On : Mon, Dec 4th, 2017

Fitch cuts full-year growth forecast to 6.7%, says GDP rebound weak

Mumbai: Terming India’s latest quarterly GDP growth as a “rebound that was weaker than expected”, Fitch Ratings has reduced the growth forecast for the fiscal year ended March 31, 2018, to 6.7 per cent from 6.9 per cent.

Simultaneously, the global rating agency has pared the FY19 forecast for the country to 7.3 per cent from 7.4 per cent.

The Indian economy picked up in the second quarter (July-September) of 2017, with GDP growing by 6.3 per cent year-on-year (y-o-y), up from 5.7 per cent in the preceding quarter.

According to the agency, growth has repeatedly been disappointing 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 GST in July 2017.

Fitch expects GDP growth to pick up in the next two years. The agency assessed that the 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.

“First, a two-year large bank recapitalisation plan [worth ₹2.1 lakh crore or 1.4 per cent of GDP] for State banks was announced. 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 ₹6.9 lakh crore, or 4.5 per cent of the GDP, over a five-year horizon]. This may encourage the investment growth outlook,” the agency said.

In a report, Fitch observed that inflation is still running at low levels, weighed down by muted food price inflation.

“The rupee has also appreciated quite sharply against the 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. These developments give headroom for the RBI to keep interest rates quite low in order to help lift the economy,” said the agency.