Fitch lowers India's GDP growth projection to 7.5% for FY16

Global rating agency Fitch has lowered India's GDP growth projection to 7.5 percent from 7.8 percent on average monsoon and said that the country is poised to grow at 8 percent next fiscal on structural reforms and higher investment. Fitch in its Global Economic Outlook report has cited that the GDP growth in the first quarter of the current fiscal was not up to the mark as it slowed down to 7% from that of 7.5% in the preceding quarter on account of moderating private consumption growth and lower net exports. Fitch continues to expect an acceleration of growth to 8 percent for 2016-17 and 2017-18 fiscal years.

Fitch said that the government is increasing its capital expenditure, though it will likely have to reduce spending close to the end of the financial year in order to meet the fiscal target. Further below-average rainfall during this year’s monsoon season, recorded at 14 percent below average is also likely to somewhat lower growth.

It added that the effect of gradual implementation of a number of structural reforms is also expected to contribute to higher growth, even though progress is lacking on big ticket reforms such as the Land Acquisition Amendment Bill and the Goods and Services Tax. Further, monetary policy loosening is also likely to contribute to a pickup in growth, although monetary transmission is limited given relatively weak banking sector health.

It said that India would be less affected with the China slowdown, however the increasing risk premium complicates the monetary policy response to the shock. It has projected China to grow at 6.8 percent in 2015, 6.3 percent in 2016 and 5.5 percent in 2017.

On global front, it said that the economy will grow by just 2.3 percent in 2015, the weakest since the global financial crisis in 2009, dragged down by a recession in Brazil and Russia and a structural slowdown in China and many emerging markets. It expects a pick up to 2.7% in 2016 and 2017 as growth recovers in few emerging markets.