Fitch trims India growth forecast to 6%

Last Updated: Sat, Sep 29, 2012 16:53 hrs

Fitch Ratings on Friday cut projections for India’s gross domestic product (GDP) growth to 6 per cent for 2012-13 from its earlier estimate of 6.5 per cent, citing increased risks to global economic recovery.

However, Fitch maintained the forecast for FY14 GDP growth at 7 per cent. Standard and Poor’s (S&P) had on Monday cut the GDP growth forecast to 5.5 per cent from 6.5 per cent.

Like S&P, Fitch, too, has expressed concern on implementation risks for the economic reform measures announced by the government recently due to “volatile political environment”.

However, it maintained these steps “may help to restore confidence and lift investment”.

Earlier this month, the government had made some big-bang policy announcements on opening multi-brand retailing to foreign direct investment, easing norms in single-brand retail, allowing foreign airlines to invest 49 per cent in Indian airlines, raising diesel prices by Rs 5 a litre and capping the cooking gas subsidy to narrow the fiscal deficit.

The rating agency is not optimistic on the third quarter of the financial year, either.

“Investment rose just 0.7 per cent year-on-year in Q212, with higher-frequency indicators pointing to another weak outturn in Q3,” it said in the report.

The projections clash with the optimism of the government that the economy would grow at a faster rate in the second half of this financial year, to deliver 6.5-6.7 per cent growth for the full year.

The growth was 5.5 per cent in the first quarter.

In response to the forecast cut by S&P, C Rangarajan, chairman of the Prime Minister's Economic Advisory Committee, had said he disagreed and stuck to the body’s estimate of a 6.7 per cent expansion this year.

Economists said the recent reforms might not have any immediate impact on growth or inflation.

Fitch also said the government has little room for fiscal easing as India's general government deficit is at 8.5 per cent of GDP in fiscal 2012.

“A number of quarters of weak investment, in turn, may be starting to affect the economy's supply capacity, pointing to a weaker growth outlook,” it said.

On Inflation and easing of monetary policy too, the rating agency expressed concerns.

"Inflation pressures are likely to intensify following the government's long-awaited decision to hike diesel prices by 12 per cent in mid-September,” it said adding that the recent rebound in international crude oil prices means that the government may need to raise the prices of other energy-related items.

"From a monetary perspective, elevated inflationary pressures suggest the Reserve Bank of India may not be able to aggressively cut policy rates in the near term," it added.

WPI inflation went up by 7.55 per cent in August, up from 6.9 per cent in July and CPI grew 10 per cent during the month, up from 9.9 per cent during July.

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