Fitch cuts India’s 2019-20 GDP forecast to 6.8 per cent

MUMBAI: Fitch Ratings on Friday cut India’s GDP growth rate projection for the next financial year to 6.8 per cent, from its previous estimate of 7 per cent, on account of weaker-than-expected growth momentum.

The US rating agency said it has also changed outlook on the Reserve Bank of India’s monetary policy review, projecting another interest rate cut of 25 basis points (bps) in 2019 owing to inflation staying below the target and easier global monetary conditions.

“While we have cut our growth forecasts for the next fiscal year on weaker-than-expected momentum, we still see Indian GDP growth to hold up reasonably well, at 6.8 per cent, followed by 7.1 per cent in FY21.” the Fitch report said.

Noting that weaker momentum has been mainly domestically driven, Fitch said credit availability has tightened in areas heavily dependent on non-bank financial company (NBFC) credit such as automobiles and two-wheelers, where sales have dropped.

On the banking sector, the Fitch report noted that credit to the private sector increased in recent months, filling the void left by NBFCs facing a liquidity crisis.

“Further capital injections and a looser regulatory stance of the RBI have eased (though not removed) the state banks’ capital constraints, while the central bank has raised the limit on collateral-free loans that banks can make to farmers (by 60 per cent), helping prevent a decline in bank lending,” the report said.

“The RBI has adopted a more dovish monetary policy stance and cut interest rates by 25 bps at its February 2019 meeting, a move supported by steadily decelerating headline inflation.” On the fiscal side, the budget for financial year 2019-10 plans to increase cash transfers for farmers, the rating agency said.

“Our benign oil price outlook and our expectations of accelerating food prices in the coming months should support rural households’ income and consumption,” it added.

India’s core consumer inflation was seen at 5.3-5.4 per cent in February, slightly higher than a downwardly revised 5.2-5.3 per cent in January, according to three analysts who estimated from inflation figures released recently.

India’s annual retail inflation picked up in February to 2.57 per cent, after easing to a downwardly revised 19-month low of 1.97 per cent in January, government data showed. The January number was revised downwards from 2.05 percent earlier, the data showed.

Meanwhile, the International Monetary Fund (IMF) has said India has been one of the fastest growing large economies in the world, asserting that the country has carried out several key reforms in the last five years, but more needs to be done.

Responding to a question on India’s economic development in the last five years at a fortnightly news conference here, IMF communications director Gerry Rice on Thursday said, “India has of course been one of the world’s fastest growing large economies of late, with growth averaging about seven per cent over the past five years.”

“Important reforms have been implemented and we feel more reforms are needed to sustain this high growth, including to harness the demographic dividend opportunity, which India has,” he said.

Details about the Indian economy would be revealed in the upcoming World Economic Outlook (WEO) survey report to be released by the IMF ahead of the annual spring meeting with the World Bank next month, he said. This report would be the first under Indian American economist Gita Gopinath, who is now IMF’s chief economist.

“The WEO will go into more details. But amongst the policy priorities, we would include accelerate the cleanup of banks and corporate balance sheets, continue fiscal consolidation, both at centre and state levels, and broadly maintain the reform momentum in terms of structural reforms in factor markets, labour, land reforms and further enhancing the business climate to achieve faster and more inclusive growth,” Rice said.

Separately, the Sensex and Nifty opened higher on Friday following firm Asian markets along with gains in the pivotal banking stocks.

Sentiments continued to be upbeat on Friday over sustained inflows of foreign funds which has supported the equities and the domestic currency alike.

The rupee gained against the US dollar and selling in export-oriented IT and technology stocks was, hence, seen during the early trade.

Almost all other sectoral indices traded in the green.

The Sensex of the BSE opened at 38,452.47 from its previous close at 38,386.75 on Wednesday.

Markets were closed on Thursday on the occasion of Holi.

At 9.19am, the Sensex traded at 38,502.86 up 116.11 points or 0.30 per cent.

The Nifty of the National Stock Exchange (NSE) opened at 11,549.20 after closing at 11,521.05 on Wednesday.

The Nifty traded at 11,554.95 during the morning trade session, up 33.90 points and 0.29 per cent.

Foreign Institutional Investors bought stocks worth Rs 1,771.61 crore on Wednesday while Domestic Institutional Investors sold scrips worth Rs 1,323.17 crore.

Agencies