Global agency Fitch Ratings forecast slower growth for India at 7.4 per cent for the current fiscal which it said will accelerate to 8 per cent only by 2018-2019, on account of a lagged impact of monetary easing.
“Gross domestic product (GDP) growth fell to 7.1 per cent year-on-year in second quarter of 2016-17 from 7.9 per cent in the first quarter. This was lower than the 7.6 per cent estimated in the July Global Economic Outlook (GEO) report. Nevertheless, we forecast growth to accelerate gradually from 7.4 per cent in year ending March 2017 to 8 per cent in 2018-19,” Fitch Ratings said in its latest Global Economic Outlook report.
India witnessed a 7.6 per cent growth rate in 2015-16.
The agency also predicted the Reserve Bank of India, led by its new Governor Urjit Patel, to cut its policy rate by 25 basis points to 6.25 per cent before the end of 2016, followed by one more rate cut in 2017.
“Public-sector wage hikes, the lagged impact of monetary policy easing, and a better-monsoon season than the previous two years should support growth in the near term, while decent progress on structural reforms — including the recent landmark passage of the Goods and Services Tax in parliament — should facilitate a turnaround in investment over the medium term,” the report said.
However, it added that India is expected to remain by a wide margin the fastest growing country among Fitch20 economies.
“Private consumption growth was 6.7 per cent in second quarter and is expected to strengthen further and reach 8.8 per cent in 2017-18 due to increasing real disposable income growth. In contrast, gross fixed capital formation remained very weak in second quarter, declining by 3.1 per cent year-on-year,” it said.
Nevertheless, we forecast a sharp pick-up in 2017-18 investment growth to 6.3 per cent, it added.
“Strong export growth also continued in second quarter of the current fiscal, a rebound from the contraction in 2015. Meanwhile, import dynamics remained weak and thus net exports will have a 1.6 percentage point growth contribution in 2016-17 before moderating over the medium term,” it said.
Headline consumer price index (CPI) inflation was 5.1 per cent in August 2016, a one percentage point drop compared to the previous month.
“We forecast inflation to start gradually increasing to 5.5 per cent by end-2016, 5.8 per cent by end-2017 and 6.0 per cent by end-2018, the upper end of the 4 per cent pus or minus two percentage points medium-term inflation target range,” it said.