Dried fruits, nuts and spices are displayed at a store at Khari Baoli spice market in New Delhi, India. (Photographer: Ruhani Kaur/Bloomberg)

Fitch Slashes India Growth Forecast To 7.2% On Reduced Credit Availability 

Fitch Ratings slashed India's GDP growth forecast to 7.2 percent for current fiscal, from 7.8 percent projected in September, citing higher financing cost and reduced credit availability.

Fitch estimated India's GDP growth to be 7 percent and 7.1 percent in financial years 2019-20 and 2020-21 respectively, in its Global Economic Outlook report. Indian economy grew 6.7 percent in 2017-18.

Fitch said GDP growth has "softened quite substantially" in July-September quarter of current fiscal growing by 7.1 percent, as against 8.2 percent in April-June quarter.

"Consumption was the weak spot, stepping down from 8.6 percent to 7 percent, though still growing at a healthy rate. Other components of domestic demand fared well, notably investment, which has been steadily strengthening since second half of last financial year. The external sector was again a significant drag on overall GDP amid steadily accelerating imports, Fitch said.

The global rating agency said India's fiscal policy should continue to support growth in the run-up to elections in early 2019 and forecast Indian rupee to weaken to 75 to a dollar by end of 2019. The rupee is currently hovering around 71 per dollar mark.

"Stepped-up public investment has helped to stem the downward trend in the investment to GDP ratio, boosted by infrastructure spending. There have also been measures to support rural demand," it added.

It said the banking sector is still struggling with a high proportion of non-performing assets, while non-banking financial institutions are facing tighter access to liquidity following the default of IL&FS, one of the 30 biggest NBFCs in India.

NFBCs have accounted for a large share of all lending in recent years and have expanded credit rapidly, it said.

Also read: Fitch Projects Rupee To Weaken To 75 Against Dollar By 2019-End

So far, the Reserve Bank of India has dismissed calls by the government to provide emergency liquidity and to ease lending restrictions on the maximum volume of lending that state-run banks can provide to NBFIs, Fitch added.

Fitch, however, retained its global GDP forecasts for 2018 and 2019 at 3.3 percent this year and 3.1 percent next year. It also retained China's growth projections at 6.6 percent in 2018 and 6.1 percent in 2019. Fitch expects oil prices to recover somewhat from current levels, with OPEC likely to agree to some production cuts at its early December meeting.

It also retained China's growth projections at 6.6 percent in 2018 and 6.1 percent in 2019. Fitch expects oil prices to recover somewhat from current levels, with OPEC likely to agree to some production cuts at its early December meeting.

Fitch expects oil prices to recover somewhat from current levels, with OPEC likely to agree to some production cuts at its early December meeting.

"Our 2018 annual average estimate has been raised slightly to $72.5 per barrel to reflect year-to-date out-turns but our 2019 assumption is unchanged at $65. In the medium term, we have become a little more confident in the ability of OPEC+ and to help stabilise prices," Fitch said.

The 2020 oil price forecast has been revised upwards to $62.5 from $57.5 projected in September outlook of Fitch.

Also read: India's GDP Revisions Are Confusing Even Central Bank Economists