Fitch Cuts India’s FY20 GDP Growth Forecast to 6.8%

Global credit ratings firm Fitch has trimmed India’s growth forecast for the financial year beginning April 1 to 6.8%, citing slow momentum in the manufacturing and agriculture sectors.

The assessment differs from that of its peer S&P, which expects growth to pick up in the quarters ahead. “While we have cut our growth forecasts for the next fiscal year (FY20, ending in March 2020) on weaker-than-expected momentum, we still see Indian GDP growth to hold up reasonably well, at 6.8%, followed by 7.1% in FY21,” Fitch said in its global economic outlook issued Friday.

In a forecast issued in December last year, the rating agency had pegged India’s growth rate in FY 19-20 at 7%, which was yet a downgrade from its previous forecast of 7.5% for the same fiscal.

India’s GDP growth softened for the second consecutive quarter in the fourth quarter of 2018, with the economy growing by 6.6% year on year, after increases of 7% and 8% in the third and second quarters, respectively.

Weaker growth momentum has largely been domestically driven, with tightening of credit availability in sectors dependent on non banking financial company credit, the report said.

The Indian economy is expected to do better in FY 21, with growth rate expected at 7.1%.

“Banks have been increasing credit to the private sector in recent months, filling the void left by the NBFCs,” the Fitch report said. “Further capital injections and a looser regulatory stance of the Reserve Bank of India have eased (though not removed) the state banks’ capital constraints.”

The report said another rate cut may be on cards after the RBI adopted a more dovish stance and cut interest rates by 25 basis points in its February monetary policy review.

“We have changed our rate outlook and we now expect another 25 bp cut in 2019, amid protracted below target inflation and easier global monetary conditions than previously envisaged,” Fitch said.

The increase in cash transfers to farmers as part of the budget for FY20 is a growth-friendly move on the fiscal side.

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

The Fitch report differs from that of S&P, which expects India’s economic growth to pick up in the next fiscal at 7.6%.

In its monthly Asia-Pacific report, S&P said activity was mixed with divergence between hard and soft data – the decline in GDP growth and slowing industrial output against improvement in manufacturing PMI and RBI’s survey of manufacturers.

It expects a pick-up in both investments and consumption. “As policies have tilted toward growth, the prospect of a pickup in private consumption and investment have improved since late 2018,” said the report.

In a forecast issued in December, the rating co had pegged India’s growth rate in FY 19-20 at 7%, which was yet a downgrade from its previous forecast of 7.5% for same fiscal

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