Fitch reduces India GDP growth forecast to  6.8% from previous 7%

Fitch reduces India GDP growth forecast to 6.8% from previous 7%

Agency News

New Delhi, Mar 22 : Fitch Ratings on Friday reduced India’s economic growth forecast for the next financial year starting April 1, to 6.8 per cent from its previous estimate of 7 per cent, on 'weaker than expected momentum' in the economy.

'We have cut our growth forecasts for the next fiscal year (FY20, ending in March 2020) on weaker-than-expected momentum, we still see Indian GDP growth to hold up reasonably well, at 6.8 per cent, followed by 7.1 per cent in FY21,' the rating agency said.

India’s GDP growth softened for the second consecutive quarter in Quarter 4 of 2018, with the economy growing by 6.6 per cent yoy after increases of 7 per cent and 8 per cent in third Quarter of 2018 and second Quarter of 2018, respectively, it said.

The slowdown has been driven by cooling activity growth in the manufacturing sector and, to a lesser extent, agriculture. Weaker momentum has been mainly domestically driven.

First, credit availability has tightened up in areas heavily dependent on non-bank financial company (NBFC) credit, such as autos and two-wheelers, where sales have dropped. Second, food inflation has been muted and fell into negative territory late last year, weighing on farmers’ incomes.

'Banks have been increasing credit to the private sector in recent months, filling the void left by the NBFCs. Further capital injections and a looser regulatory stance of the Reserve Bank of India (RBI) have eased (though not removed) the state banks’ capital constraints, while the central bank has raised the limit on collateral-free loans that banks can make to farmers (by 60 per cent), helping prevent a decline in bank lending,' it said.

Fiscal and monetary policies are also becoming more growth- friendly. The RBI has adopted a more dovish monetary policy stance and cut interest rates by 25bp at its February 2019 meeting, a move supported by steadily decelerating headline inflation.

'We have changed our rate outlook and we now expect another 25bp cut in 2019, amid protracted below target inflation and easier global monetary conditions than previously envisaged. On the fiscal side, the budget for FY20 plans to increase cash transfers for farmers.

'Our benign oil price outlook and our expectations of accelerating food prices in the coming months should support rural households’ income and consumption,' the agency said.

Fitch Ratings Inc is one of the "Big Three credit rating agencies", the other two being Moody's and Standard & Poor's.UNI