Fitch upgrades India's growth forecast to 7.8% in FY19

Rating agency Fitch on Friday upgraded India's economic growth forecast for financial year 2018-19 to 7.8% from its earlier estimates of 7.4% but said rising oil bills and weak balance sheet of banks could pose headwinds.

"We have revised up our forecast for FY19 growth to 7.8% from 7.4% on the back of the better-than-expected performance during second quarter of FY18. India's growth likely peaked in April-June quarter of FY2018 though," the rating agency said in its Global Economic Outlook.

The rating upgrade came a little after India's economy grew 8.2% in the April-June quarter. Fitch also expressed hope that India's fiscal policy will be growth oriented in the run-up to elections.

"Fiscal policy should remain quite supportive of growth in the run up to elections likely to be held in early 2019. The investment/GDP ratio has stopped trending down, helped by ramped up public infrastructure outlays, in particular by state-owned enterprises," it said.

Finance Minister Arun Jaitley has reiterated his commitment to keep the fiscal deficit at 3.3% of the GDP in 2018-19 and maintain a 100% capital expenditure without any cut despite the year being an election year.

Although inflation is largely under control at the moment, the rating agency forecast a pick up in price rise situation on the back of rupee deterioration and demand-pull pressures.

Fitch, however, cut the growth forecasts for 2019-2020 and 2020-2021 by 0.2 percentage points to 7.3%.

Fitch is the first among rating agencies to upgrade India's growth forecast this year. Moody's had earlier estimated the economic growth to be 7.4% in 2018-19 which was a percentage point higher than earlier projection of Fitch.

Though IMF, in its latest projections in July, cut India's growth forecast for 2019 by 0.3% points than its April estimates, it still held it at 7.5%. The global lender too cited high oil prices and greater than monetary tightening due to rising inflation as risk to growth.

According to World Bank's latest estimates India is expected to grow at 7.5% in the current year. ADB has put  it at 7.6%.

The RBI, however, has projected the country to grow at 7.4% and the government believes the economy will accelerate at 7.5%.