Fitch raises India’s GDP growth forecast to 7.8%

New Delhi, India - US multinational Fitch Ratings on Friday raised India’s GDP growth forecast for the current fiscal to 7.8 per cent, up from their earlier estimate of 7.4 per cent, indicating, however, that tightening of financial conditions, global oil prices and accumulated bad loans of banks continued as headwinds to the country’s growth.

Releasing its latest Global Economic Outlook, Fitch also said that protectionist US trade policies are materially affecting a strong global growth outlook and that the US-China trade battle has prompted the American rating agency to downgrade its 2019 global GDP forecast.

‘We have revised up our forecast for financial year 2018-19 growth to 7.8 per cent from 7.4 per cent on the back of the better-than-expected second quarter of 2018 outturn. India’s growth likely peaked in the second quarter of 2018 (April-June) though. And despite the central bank’s (RBI) greater tolerance for currency depreciation, interest rates have been raised by more than anticipated’ Fitch said.

Fitch estimated retail inflation to rise up to the higher end of the Reserve Bank of India (RBI)’s target of four per cent with a band range of two per cent either way, owing to the relatively high demand-pull pressures and the steep depreciation of the rupee.

Inflationary risks along with broadly negative global cues depressed the Indian rupee to a new low of 72.91 against the US dollar on Tuesday. Fitch also lowered India’s GDP growth forecasts for the fiscals 2019-20 and 2020-21 by 0.2 percentage points to 7.3 per cent.