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  3. Fitch lowers growth forecast for Indian economy to 7.7% in 2011

Fitch lowers growth forecast for Indian economy to 7.7% in 2011

04 Jul 2011 Evaluate

The surging inflation, volatile commodities and crude oil prices has made dent in India’s growth story. Recently, global rating agency, Fitch Ratings in its Global Economic outlook has downturned India’s Gross Domestic Product (GDP) growth target from 8.3% to 7.7% in 2011. The rating agency in its report says 'the growth has clearly hit a soft patch, as GDP grew only 7.8% in the first quarter of 2011 (Q4 of FY11), down from 8.4% in Q4, FY10, and 8.9% in Q3, FY10.'

'A breakdown of GDP by expenditure shows that the slowdown can be largely attributed to a downturn in fixed investments, which grew by only 0.4% in Q1 of 2011. Private sector investment activity not only appears to be affected by higher borrowing costs, but also by other factors like rising input costs, thin profits and rising bureaucratic red tape,' the report notes.

Before Fitch, other international agencies such as International Monetary Fund (IMF) and World Bank (WB) had revised their growth projection downward for the Indian economy for this financial year. Both the agencies have estimated sub-8% growth for this year, in a major drop from 8.5% last year.

Wholesale price index-based inflation has remained high since early 2010, noted the Fitch report, and said, 'Core inflation grew by average of 9.3% in the first five months of 2011, slightly below 9.6% averaged in 2010.”Although food inflation has eased from the high 20.9% in the first half of 2010, underlying inflation pressures remain intense.

The economic outlook is likely to remain somewhat clouded by persistent inflationary pressures as the headline measure of WPI inflation has remained high since early 2010,' says the report. After a month-long rally, food inflation plunged to a one and-a-half month low of 7.78% for the week ended June 18, down from 9.13% in the previous week.

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