Fitch cuts India's growth forecast to 7.2%

Fitch said the GDP growth had substantially lowered in July-September as compared to the previous quarter and cited weak consumption growth and a drag on the external sector. Reuters file photo

Global rating agency Fitch on Thursday cut India's GDP growth forecast to 7.2% for 2018-9 from 7.8% estimates two months ago on the back of a weaker than expected momentum in GDP data.

It said that India's fiscal policy should continue to support growth in the run-up to 2019 elections.

“We have lowered our growth forecasts on weaker-than-expected momentum in the data (GDP), higher financing costs and reduced credit availability. We now see GDP growth at 7.2% in the fiscal year ending March 2019, followed by 7.0% in FY20 and 7.1% in FY21,” Fitch said in its Global Economic Growth outlook released Thursday.

Fitch said the GDP growth had substantially lowered in July-September as compared to the previous quarter and cited weak consumption growth and a drag on the external sector.

India grew at 7.1% in July-September from 8.2% in April-June.

"Consumption was the weak spot, stepping down from 8.6 per cent to 7 per cent, though still growing at a healthy rate. Other components of domestic demand fared well, notably investment, which has been steadily strengthening since 2H17. The external sector was again a significant drag on overall GDP amid steadily accelerating imports,” Fitch said.

In September, the rating agency had forecast 2019-20 and 2020-21 GDP growth at 7.3%.

On banking sector, it said they were still struggling with a high proportion of non-performing assets, while non-banking financial institutions (NBFIs) were facing tighter access to liquidity following the default of IL&FS, one of the 30 biggest NBFIs in India.

On inflation, its expectations were that inflation may edge up mildly in the coming months, on normalising food prices and higher import prices stemming from the depreciation of rupee.

"The widening of the current account deficit amidst tighter global financing conditions should put downward pressure on the currency, and we forecast the INR to weaken to 75 against the dollar by end-2019," it said.

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Fitch cuts India's growth forecast to 7.2%

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