Fitch downgrades India’s growth forecast for FY18 and FY19

  • Rating agency Fitch has cut India’s GDP growth forecast by 20 basis points to 6.7% for FY18 and 10 basis points to 7.3%. According to the rating agency, the 6.3% growth rate registered in 3Q17 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.
  • The US-based ratings agency said growth has “repeatedly disappointed” in recent quarters, partly because of one-off factors including the demonetisation programme and disruptions related to the implementation of the GST in Jul 17.
  • 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 INR2.11tr is likely to help address the capital shortages that have hindered the banks’ lending capacity.
  • Also, the INR6.9tr 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 2017 give headroom for the RBI to keep interest rates low in order to help lift the economy, Fitch added.

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