Fitch lowers India GDP forecast to 7.5% for 2015-16

New Delhi: Fitch Ratings has lowered India's GDP growth estimate for the current fiscal to 7.5 percent from 7.8 percent on average monsoon but said the country is poised to grow at 8 percent next fiscal on reform push.

This comes a day after Reserve Bank revised downwards its real GDP forecast for 2015-16 to 7.4 percent from earlier expectation of 7.6 percent, saying growth is expected to pick up in the latter part of the fiscal.

"India takes over as the fastest growing BRIC this year with 7.5 percent GDP growth, accelerating to 8 percent in 2016 driven by structural reforms and higher investment," Fitch said in its Global Economic Outlook report.

It said the GDP growth in the first (April-June) quarter was "disappointing" as it slowed to 7 percent from 7.5 percent in the preceding quarter on moderating private consumption growth and lower net exports.

"Fitch has revised its forecast for Indian real GDP growth for FY16 to 7.5 percent from 7.8 percent," it said.

Below average rainfall during this year's monsoon season, recorded at 14 percent below average, is also likely to lower growth somewhat, it said. Agriculture contributes close to 18 percent of the India's GDP.

Fitch continues to expect an acceleration of growth to 8 percent for 2016-17 and 2017-18 fiscal years.

It said the government is increasing its capital expenditure, although it will likely have to reduce spending closer to the end of the fiscal year to meet the fiscal target.

"The effect of gradual implementation of a number of structural reforms is also expected to contribute to higher growth, even though progress is lacking on big ticket reforms such as the Land Acquisition Amendment Bill and the Goods and Services Tax," Fitch said.

It said monetary policy loosening is also likely to contribute to a pickup in growth, although monetary transmission is limited given relatively weak banking sector health.

As regards the China slowdown, Fitch said India would be "less affected" by falling demand, but the increasing risk premium complicates the monetary policy response to the shock.

It projected China to grow 6.8 percent in 2015, 6.3 percent in 2016 and 5.5 percent in 2017.

Fitch further said the decline in inflation in India to

3.7 percent in August was largely resulting from a fall in food and oil prices.

The RBI has cut its policy repo rate four times by a total 1.25 percent between January-September to a four and a half year low of 6.75 percent.

"Further monetary policy easing seems unlikely in the short run as the RBI has indicated that the latest rate cut in September 2015 was a front-loaded policy action," it said.

Fitch also said the latest quarterly data publication shows both a slowdown in GDP growth and a simultaneous pickup in Gross Value Added (GVA) which illustrates that these data continue to be difficult to interpret.

"Real GDP growth at over 7 percent and a pick-up starting already in mid-2013 remain difficult to reconcile with supply constraints, still weak corporate balance sheets and a rise in banks' non-performing loans," it added.

As regards global growth, Fitch Ratings forecasts the global economy will grow by just 2.3 percent in 2015, the weakest since the global financial crisis in 2009, dragged down by a recession in Brazil and Russia and a structural slowdown in China and many emerging markets (EM).

It forecast a pickup to 2.7 percent in 2016 and 2017 as growth recovers somewhat in EM.

"EMs are becoming an increasing source of global growth risks as the collapse in commodity prices and political shocks exacerbate a secular slowdown," Fitch added.

It said although the US Federal Reserve left its key interest rate unchanged at its September meeting, it expect the bank to start the global monetary tightening cycle before 2015 end, followed by the Bank of England.