Fitch Ratings lowers India's growth forecast to 6.9%

Fitch Ratings has lowered India’s economic growth forecast for the current fiscal to 6.9%, from 7.4% after the GDP growth “unexpectedly faltered” in the April-June quarter.

The credit rating agency said however that it expects economic activity to accelerate in the second half of the fiscal year, with the waning impact of one-off events including the demonetisation shock in late 2016, and the GST rollout in July, which had dampened growth in the short term.

“The large stock of non-performing loans on bank balance sheets could, however, dampen the outlook for credit growth and business investment,” Fitch Ratings in its latest Global Economic Outlook (GEO).

The Asian Development Bank (ADB) had last month slashed India’s GDP growth forecast for the current fiscal to 7% from 7.4%, owing to weakness in private consumption, manufacturing output and business investment.

India had posted a 7.1% growth in in 2016-17. ADB pencilled in 7.4% for 2018-19, down from the earlier forecast of 7.6% in July. Fitch Ratings said the global economy has improved markedly this year and is on course to recording its fastest expansion since 2010.

India’s GDP growth at 5.7% in the first quarter (April-June), down from 6.1% in the previous year, is “the lowest outturn since early 2013, and GDP has now been cooling for five consecutive quarters”, it said.

Economic activity in the quarter, it said, may have been disrupted by firms running down inventory ahead of the implementation of the GST in July. The manufacturing sector lost steam in the quarter, growing at a meagre 1.2%.

The primary sector also dampened growth, while construction and tertiary activity bounced back. On the expenditure side, net trade was a big drag on growth, with exports decelerating sharply.