Fitch trims India’s FY16 growth projection to 7.8%

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New Delhi | Updated: July 3, 2015 1:27:08 AM

But rating agency says country would exceed China's growth rate; ICRA forecasts India growth at 7.4-7.6%

Global rating agency Fitch on Thursday trimmed its economic growth projection for India to 7.8% for 2015-16 from 8% predicted earlier, although the country would still exceed China’s growth rate this year for the first time since 1999. Fitch also says India’s growth in the next fiscal could touch 8.1%, lower than the 8.3% it had forecast in March, before slowing further to 8% in 2017-18.

“Capital expenditure has not yet picked up, rural and export demand is weak, and the translation of the monetary policy loosening into lower bank lending rates is limited,” the agency said in a report. “Downside risks to growth relate, for instance, to below-average rainfall during this year’s monsoon season, although the first three weeks of June recorded 16% above-average rainfall,” it added.

The country’s GDP grew 7.3% in the last fiscal. NITI Aayog vice-chairman Arvind Panagariya this week said the country’s economy could grow 8% in the current fiscal. The agency has predicted China’s growth to slow down from 7.4% in 2014 to 6.8% in 2015 and 6.5% in the next year.


Despite the downward revision, the agency believes India could make up for almost a half of the forecast growth for the emerging markets, excluding China (the region is predicted to grow 4.3% in 2016 and the year after that). Some high-frequency data, including a pick-up in both non-oil/non-gold imports and domestic vehicle sales in April, point to a strengthening of demand in India, it said. “The government’s strong drive to implement structural reforms should also lead to improvements in the business environment and, over time, to a pick-up in investments,” it noted in the report.

However, it cautioned that the translation of the reforms into higher real GDP growth will depend on the actual implementation. “India’s business environment is relatively weak, compared with peers, and will take time to turn around,” it said.

Fitch also cast some doubt over the growth rate under the new GDP series, especially for 2013-14, when the economy was said to have grown 6.9% against 4.7% calculated under the 2004-05 series. “These GDP growth levels and a pick-up starting already in mid-2013 remain difficult to reconcile with indicators that show still low investment levels, weak corporate balance sheets and a rise in banks’ non-performing loans,” it said. Even in 2014-15, gross fixed capital formation expanded just 4.6%, albeit up from 3% in the previous fiscal, while private final consumption expenditure growth remained almost stable at 6.3%.

ICRA forecasts growth at 7.4-7.6%

The economy could grow in the 7.4-7.6% range in the current fiscal, compared with 7.3% a year before, rating agency ICRA said on Thursday. “The recent improvement in growth recorded by the Index of Industrial Production, core sector industries, and various services sector indicators related to air traffic and cargo handled at ports are encouraging. Such factors would support a mild uptick in Indian GDP growth,” ICRA said.

However, it added that considering the weak rabi harvest in the first quarter of 2015-16 fiscal, as well as the lingering uncertainty regarding the ultimate turnout of the kharif harvest, the agricultural sector may post marginal growth in the current fiscal, with an improvement in rural sentiments and consumption activity unlikely to set in until the second half of the current fiscal.

The farm and allied sector had grown just 0.2% in the last fiscal and an average of 1.7% in the last three years.

According to Aditi Nayar, senior economist at ICRA, the better-than-expected monsoon, sowing so far, modest rise in the support prices for various crops and a favourable base effect in some months would keep food inflation in check in the near term, enhancing the likelihood of a repo rate cut during the ongoing quarter, as long as external developments do not result in excessive volatility in the rupee.

ICRA forecasts retail inflation to be in a range of 4.0-6.0% in the rest of 2015, and average CPI inflation to decline below 5.5% in 2015 from 6.6% in 2014, assuming that crude oil prices remain relatively stable around current levels.

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