Economy may expand at 5.6% in FY '15: Fitch

High forex reserves will cushion economy

India’s economic growth is expected to pick up to 5.6 per cent in the current fiscal on account of structural reforms being rolled-out by the government, Fitch Ratings said on Tuesday.

However, factors such as pace of fiscal consolidation and structural reforms, investment and inflation environment as well as banking sector's asset quality form downside risks to the economy, the global ratings agency said in a release.

"Fitch expects real GDP growth to pick up to 5.6 per cent in fiscal 2015 and 6.5 per cent in fiscal 2016 from 4.7 per cent in fiscal 2014," it said.

The Indian economy had lost much of its dynamism in recent years due to weak investment, however, a gradual pick-up is expected now, Fitch said.

"...a gradual pick-up in investment is expected, as election-related uncertainty has disappeared, and structural reforms are being gradually rolled out," it added.

Fitch said India’s CAD was a concern for investors until mid of 2013, but it has narrowed now due to policy rates hikes and measures including curbs on gold imports through duty hikes (partially reversed).

The report said high foreign reserves provide a strong buffer to the Indian economy. India's foreign currency reserves stood at $495.5 million as of October 24, 2014.