Fitch Pares India’s Growth Forecast Amidst Global Downturn
India is among the 15 countries whose growth projections were cut.
Global rating agency Fitch Ratings has pared the growth outlook for India for the upcoming financial year 2019-20, it said in an update on Friday. India was among the 15 countries whose growth projections were cut amidst signs of a global slowdown.
Fitch expects the Indian economy to now grow by 6.8 percent in the next fiscal compared to its earlier projection of 7 percent. That expected growth rate is also slower compared to the 7 percent GDP growth likely in 2018-19.
“While we have cut our growth forecasts for the next fiscal year (FY20, ending in March 2020) on weaker-than-expected momentum, we still see Indian GDP growth to hold up reasonably well, at 6.8 percent, followed by 7.1 percent in FY21,” Fitch said.
The slowdown, Fitch said, has been driven by cooling growth in the manufacturing sector and, to a lesser extent, agriculture. Availability of credit has also tightened due to the funding squeeze faced by non-bank lenders. This, according to Fitch, has impacted sales of cars and two-wheelers.
Lower food inflation has also impacted farm incomes, it said.
The rating agency, however, sees some policy support coming in to aid growth. Among that is lower interest rates.
“Fiscal and monetary policies are also becoming more growth-friendly. The Reserve Bank of India has adopted a more dovish monetary policy stance and cut interest rates by 25 basis points at its February 2019 meeting, a move supported by steadily decelerating headline inflation.”
Fitch expects one more rate cut from the monetary policy committee in 2019 as inflation remains below target and global monetary conditions become easier than expected. “On the fiscal side, the budget for FY20 plans to increase cash transfers for farmers,” Fitch said.
The world trade growth has been weakening steadily through most of 2018 with U.S.-China trade war distorting the trade flows, Fitch said. “Global growth prospects have deteriorated significantly since our last Global Economic Outlook in December 2018. The Eurozone growth outlook has weakened particularly sharply, evidence of a slowdown in China has become much clearer and activity in other emerging markets has decelerated.”