Economy

Fitch lowers India’s growth forecast to 6%

Shishir Sinha New Delhi | Updated on March 12, 2018 Published on September 28, 2012

After Standard & Poor’s and others, global rating agency Fitch has scaled down India’s growth to 6 from 6.5 per cent. This revision has been done along with China.

The agency in its Global Economic Outlook report said: “Both regional giants face a deteriorating global growth outlook with diminished willingness or capacity to respond with domestic policy loosening, compared with 2009.”

Economic outlook

According to the report, India's economic outlook remains challenging.

Investment rose just 0.7 per cent on yearly basis during April-June quarter. Now it apprehends another weak outturn during July-September quarter as indicated by higher-frequency indicators.

Ongoing concerns over Government economic and investment policy may be weighing on business confidence. The authorities' ability to respond with looser policy is constrained by India's high inflation, fiscal deficit and public debt, it added.

Demand, consumption

A breakdown of GDP by expenditure shows that domestic demand is stagnating as private consumption grew just 4 per cent in April-June quarter.

Recent high-frequency indicators, including a contraction in merchandise exports and imports, falling motor vehicle sales and weakening infrastructure indicators, suggest that the overall economic activity has remained soft in July-September quarter.

Inflation pressures

The weaker economy, however, has done little to suppress inflation pressures, which are well above the Reserve Bank of India’s medium-term target of 4-6 per cent.

Both the wholesale price index (WPI) and the new consumer price index (CPI) show inflation pressures have reaccelerated. WPI rose to 7.6 in August, up from 6.9 per cent in July.

Meanwhile, CPI grew 10 per cent in August, up from 9.9 per cent in July.

“Inflation pressures are likely to intensify following the Government’s long-awaited decision to hike diesel prices by 12 per cent in mid-September. The recent rebound in international crude oil prices means that the government may need to raise the prices of other energy-related items,” the agency has warned.

Crop production

Rainfall has been below normal over the summer, which may have hurt crop production. According to the agency, from a monetary perspective, elevated inflationary pressures suggest that the Reserve Bank of India may not be able to aggressively cut policy rates in the near term.

Fitch projects India's General Government (Centre and States combined) deficit at 8.5 per cent of GDP in fiscal 2012, leaving little room for fiscal easing. A number of quarters of weak investment, in turn, may be starting to affect the economy's supply capacity, pointing to a weaker growth outlook.

The agency has noted various reform measures including opening of multi-brand retail for foreign direct investment. “These may help to restore confidence and lift investment, although the volatile political environment points to implementation risk,” it said.

>Shishir.Sinha@thehindu.co.in

Published on September 28, 2012
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