A worker uses a cutting torch in a workshop in New Delhi, India. (A worker uses a cutting torch in a workshop in the Naraina steel and iron market area of New Delhi, India)

Fitch Raises India’s Growth Forecast To 7.8% For FY19

Fitch Ratings today upgraded India's growth forecast for the fiscal year 2018-19 to 7.8 percent, from 7.4 percent projected earlier.

In its Global Economic Outlook, Fitch, however, flagged tightening of financial conditions, rising oil bill and weak bank balance sheets as headwinds to growth.

We have revised up our forecast for FY19 growth to 7.8 percent from 7.4 percent on the back of the better-than-expected Q2FY18 out-turn. India’s growth likely peaked in April-June though. 
Fitch Ratings 

The Indian rupee has been the worst-performing major Asian currency so far this year.

Also read: Rupee Strengthens For Second Straight Day

"And despite the central bank's greater tolerance for currency depreciation, interest rates have been raised by more than anticipated," the global rating agency said in the report.

Fitch also forecast inflation picking up to the upper part of the central bank’s target band (4 percent, plus-minus 2 percent) within the forecast horizon on relatively high demand-pull pressures and the rupee depreciation. The upward revision in growth forecast comes in the backdrop of GDP expanding 8.2 percent in April-June quarter, higher than Fitch’s expectation of 7.7 percent.

"This robust performance was partly attributable to a powerful base effect, with GDP growth dampened in Q2FY17 (April-June) by companies de-stocking ahead of the rollout of the goods and services tax," Fitch said.

Fitch has cut the growth forecasts for the FY20 and FY21 growth by 0.2 percentage points to 7.3 percent.

"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.

Also read: Fitch Sees Emerging-Market Contagion Easing as Investors Pause