Fitch ups growth forecast to 7.8 per cent

New Delhi: Rating agency Fitch on Friday raised India’s growth projection for the financial year 2018-19 to 7.8 per cent, from its earlier forecast of 7.4 per cent. The agency said that the fiscal policy should remain quite supportive of growth in the run-up to 2019 elections.

“The investment/GDP ratio has stopped trending down, helped by ramped-up public infrastructure outlays, in particular by state-owned enterprises (SOEs),” Fitch said.

It said that the government has also rolled-out measures to support low-income earners and rural demand. Despite some recent softening in prices, the agency sees inflation picking up to the upper part of the central bank’s target band within the forecast horizon on relatively high demand-pull pressures and rupee depreciation.

“India’s GDP grew at a very fast clip in first quarter of FY19 at 8.2 per cent, sharply exceeding our expectation of 7.7 per cent. This robust performance was partly attributable to a powerful base effect,” it said. Fitch said that underlying activity was robust though, led by a quickening in the manufacturing sector amid surging exports.

It said that exports are partly benefiting from a rapidly depreciating real exchange rate. This follows four years of continued real appreciation, which weighed on India’s manufacturing export performance.

Fitch said that the economic outlook is subject to several headwinds including tightening of financial conditions, a rising oil bill and weak bank balance sheets. “The rupee has been the worst-performing major asian currency so far this year. And despite the Central bank’s greater tolerance for currency depreciation, interest rates have been raised by more than anticipated. Tighter financial conditions come against a backdrop of strained banking sector health with NPLs at 10 per cent of loans," it added.