Fitch Cuts India's Growth Outlook to 6.9%

Fitch Ratings has downgraded India's growth outlook to 6.9% for 2016-17 from the earlier 7.4% due to “uncertainty“ over the benefits of demonetisation.

“The demonetisation of large denomination bank notes has caused short term disruption in India's economy and led us to downgrade our growth forecasts for 2017,“ Fitch Ratings said in its latest bi-monthly newsletter. “The move has some potential benefits, but the positive effects are unlikely to be strong or last long enough to make a significant difference to government finances or medium-term growth prospects. “The impact on the economy will increase the longer the disruption continues, but Fitch has already revised down its GDP growth forecast for the financial year ending March 31 to 6.9% from 7.4%,“ it said.

Though the intentions behind demonetisation were positive and in keeping with broader reform efforts, the short term pain may outweigh the uncertain long-term gains, Fitch said.

Government finances may also benefit from a proportion of high-denomination notes not being traded. This potentially significant amount would be subtracted from the Reserve Bank of India's (RBI) liabilities and the authorities would have the option to transfer this windfall to the government.

No comments: