Fitch revises Indias growth forecast from 7.4% to 7.8%

• HDFC
• 26 Sep 2018
• Knowledge Centre

HDFC, Tester

On 21st September 2018, Fitch Ratings upped India’s growth forecast for the current from 7.4% earlierfiscal to 7.8%.

 

However, the credit rating agency flagged rising crude oil prices, higher interest rates,and a depreciating domestic currency as key concerns.

 

Although the weakening of the Indian Rupee was lesser than what it was during the 2013 taper-tantrum episode, it has been the worst-performing major Asian currency so far this year. Fitch stated, “And despite the central bank’s greater tolerance for currency depreciation, interest rates have been raised more than anticipated.”

 

In a report titled Global Economic Outlook, Fitch also forecasts inflation rising to the upper part of the Reserve Bank of India’s (RBI) target band - 4, plus/minus 2% -within the forecast horizon on relatively high demand-pull pressures and Rupee depreciation.However, growth forecasts for FY20 and FY21 have been reduced by 0.2 percentage points to 7.3%. “The economic outlook is subject to several headwinds, including the tightening of financial conditions, a rising oil bill,and weak bank balance sheets,” Fitch stated in the report.

 

The upward revision in FY19’s growth forecast follows an expansion of 8.2% in the GDP figure for 1QFY19, higher than Fitch's expectation of 7.7%. However, this can be partly attributed to a low base, as GDP growth was muted in the corresponding quarter of the previous fiscal owing to the rollout of the Goods And Services Tax, Fitch said.

 

“Fiscal policy should remain quite supportive of growth in the run-up to the elections likely to be held in early 2019. The investment/GDP ratio has stopped trending downward, helped by ramped-up public infrastructure outlays, in particular by state-owned enterprises (SOEs),” the agency added.