Fitch raises India’s GDP forecast to 7.8% from 7.4% for FY19

Fitch Ratings in its Global Economic Outlook has revised up India’s growth forecast for current fiscal year (2018-19) to 7.8% from 7.4% projected earlier. However it has flagged tightening of financial conditions, weak bank balance sheets and rising oil bill as headwinds to growth.

Key Highlights

Growth Projections: Fitch’s upward revision in growth forecast comes in backdrop of GDP expanding 8.2% in the April-June period, higher than its expectation of 7.7%. This robust performance was partly attributable to a powerful base effect, with GDP growth dampened in 2Q17 (April-June) by companies de-stocking ahead of rollout of goods and services tax (GST). It has however cut growth forecasts for FY 2019-2020 and FY 2020-2021 growth by 0.2 percentage points to 7.3%.

Inflation Forecast: It is also picking up to upper part of Reserve Bank of India’s (RBI) target band (4%, plus-minus 2%) within forecast horizon on relatively high demand-pull pressures and rupee depreciation.

Rupee: It has been worst-performing major Asian currency so far this year. Despite RBI’s greater tolerance for currency depreciation, interest rates have been raised to higher levels, more than anticipated.

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

Fitch Ratings

It is one of Big Three credit rating agencies in the world, the other two being Moody’s and Standard & Poor’s. Fitch Ratings is smallest of the “big three”. It is headquartered in New York (US) and completely owned by Hearst Corporation.

Credit rating agency is company that assigns credit ratings, which rate debtor’s ability to pay back debt by making timely interest payments and likelihood of default.

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