What could be a big shot in the arm for Narendra Modi just a few months ahead of 2019 general elections is rating agency Fitch projecting a higher growth for the final year of his five-year term. Fitch on Friday raised India’s Gross Domestic Product (GDP) growth forecast by 40 basis points to 7.8% on the back of the “better-than-expected” outturn in the second quarter.
The financial year 2018-19 started with a bang when it posted an 8.2% growth in the first quarter, however, with the apprehension that the high growth was against the low base of the first quarter 2017. The Narendra Modi government received a lot of flak when the GDP slumped to a three-year low of 5.7% in the first quarter of FY18 due to disruptions caused by demonetisation and the Goods and Services Tax (GST).
In its Global Economic Outlook – September 2018 report, Fitch said, that the investment /GDP ratio has stopped trending down, helped by ramped-up public infrastructure outlays, in
particular by state-owned enterprises (SOEs).
“Fiscal policy should remain quite supportive of growth in the run-up to elections likely to be held in early 2019… The government has also rolled out measured to support low-income earners and rural demand,” the rating agency said in the report.
While FY19 is likely to perform better than estimated earlier in terms of GDP growth, the same is not the case with upcoming fiscal years, for which Fitch has shaved 0.2 percentage point to 7.3%. ” The economic outlook is subject to several headwinds including tightening of financial conditions, a rising oil bill and weak bank balance sheets,” Fitch said.
“The Indian rupee (INR) has been the worst-performing major Asian currency so far this year. And despite the central bank’s greater tolerance for currency depreciation, interest rates have been raised by more than anticipated. Tighter financial conditions come against a backdrop of strained banking sector health with NPLs (non-performing loans/bad loans) at 10% of loans,” it added.