FITCH SLASHES IN­DIA GROWTH FORE­CAST

In­dia’s fis­cal pol­icy should con­tinue to sup­port growth in the run-up to 2019 elec­tions as the bank­ing sec­tor is still try­ing to cope with high NPAs

Financial Chronicle - - FRONT PAGE - FC BU­REAU

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.

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 weaker-than-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.

“Stepped-up pub­lic in­vest­ment has helped to stem the down­ward trend in the in­vest­ment/GDP ra­tio, boosted by in­fra­struc­ture spend­ing. There have also been mea­sures to sup­port ru­ral de­mand,” it added.

It said the bank­ing sec­tor is still strug­gling with a high pro­por­tion of non-per­form­ing as­sets, while non­bank­ing fi­nan­cial in­sti­tu­tions (NBFIs) are fac­ing tighter ac­cess to liq­uid­ity fol­low­ing the de­fault of IL&FS, one of the 30 big­gest NBFIs in In­dia.

NFBIs have ac­counted for a large share of all lend­ing in re­cent years and have ex­panded credit rapidly, it said.

“So far, the Re­serve Bank of In­dia (RBI) has dis­missed calls by the gov­ern­ment to pro­vide emer­gency liq­uid­ity and to ease lend­ing re­stric­tions on the max­i­mum vol­ume of lend­ing that state-run banks can pro­vide to NBFIs,” Fitch added.

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 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,” it said.

Fitch, how­ever, re­tained its global GDP fore­casts for 2018 and 2019 at 3.3 per cent this year and 3.1 per cent next year.

It also re­tained China’s growth pro­jec­tions at 6.6 per cent in 2018 and 6.1 per cent in 2019.

With re­gard to crude prices, Fitch ex­pect oil prices to re­cover some­what from cur­rent lev­els, with OPEC likely to agree to some pro­duc­tion cuts at its early De­cem­ber meet­ing.

“Our 2018 an­nual av­er­age es­ti­mate has been raised slightly to $72.5 per bar­rel to re­flect year-to­date out-turns but our 2019 as­sump­tion is un­changed at $65. In the medium term, we have be­come a lit­tle more con­fi­dent in the abil­ity of OPEC+ (in­clud­ing Opec and non-Opec oil ma­jors) and to help sta­bilise prices,” Fitch said.

The 2020 oil price fore­cast has been re­vised up­wards to $62.5 from $57.5 pro­jected in Septem­ber out­look of Fitch.

The price of In­dian bas­ket of crude oil fell be­low $60 to a bar­rel by end Novem­ber, from $85 to a bar­rel in early Oc­to­ber.

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