Credit crunch to hurt India’s GDP growth Fitch cuts economic forecast to 7.2% from 7.8% for this fiscal

Fitch Ratings on Thursday slashed India's GDP growth forecast to 7.2 per cent for current fiscal, from 7.8 per cent projected in September, citing higher financing cost and reduced credit availability.

In its Global Economic Outlook released on Thursday, Fitch estimated India's GDP growth to be 7 per cent and 7.1 per cent in financial years 2019-20 and 2020-21 respectively.

Indian economy grew 6.7 per cent in 2017-18 fiscal. The 7.2 per cent GDP growth for current fiscal is substantially lower than 7.8 per cent and 7.4 per cent projections made by Fitch in September and June respectively.

It is also lower than RBI's 7.4 per cent growth estimates for this fiscal.

“We have lowered our growth forecasts on weakerthan-expected momentum in the data (GDP), higher financing costs and reduced credit availability. We now see GDP growth at 7.2 per cent in the fiscal year ending March 2019 (FY19), followed by 7.0 per cent in FY20 and 7.1 per cent in FY21,” Fitch said. In September, the rating agency had forecast 201920 and 2020-21 GDP growth at 7.3 per cent.

Fitch said GDP growth has "softened quite substantially" in July-September quarter of current fiscal growing by 7.1 per cent, as against 8.2 per cent in April-June.

"Consumption was the weak spot, stepping down from 8.6 per cent to 7 per cent, though still growing at a healthy rate. Other components of domestic demand fared well, notably investment, which has been steadily strengthening since 2H17. The external sector was again a significant drag on overall GDP amid steadily accelerating imports,” Fitch said.

The global rating agency said India's fiscal policy should continue to support growth in the run-up to elections in early 2019 and forecast Indian rupee to weaken to 75 to a dollar by end of 2019. The rupee is currently hovering around 71 per dollar mark. NEW DELHI: Fitch Ratings on Thursday projected rupee to fall to 75 to a dollar by end of 2019, on widening of current account deficit and tighter global financing.

The Indian rupee is currently trading at a two week low level, hovering around 71 to a US dollar. Fitch said it expects inflation to edge up mildly in the coming months, on normalising food prices and higher import prices stemming from the depreciation of the rupee. “The widening of the current account deficit amidst tighter global financing conditions should put downward pressure on the currency, and we forecast the INR to weaken to 75 against the dollar by end-2019,” Fitch added. The domestic unit is one of the worst performing currency against the US dollar in Asia so far this year.