India's GDP growth of 8% not before 2018-19: Fitch

Raising some concern for the policy makers, the global rating agency ‘Fitch Ratings’ in its latest bi-monthly Global Economic Outlook (GEO) report, has projected Indian economy to grow at a slower rate of 7.4 percent in FY17 and to accelerate gradually to 8.0 percent only in FY19, as it expect the benefits of reforms and impact of monetary easing will kick in with a lag.

The Indian economy grew 7.6 per cent last year, GDP growth fell to 7.1 per cent in Q2 from 7.9 per cent Q1. This was lower than the 7.6 per cent estimated in the July GEO report. It further said that private consumption growth was 6.7 per cent in Q2 and is expected to reach 8.8 per cent in FY18 due to increasing real disposable income growth. It also forecasted a sharp pick-up in FY18 investment growth to 6.3 per cent. Strong export growth also continued in Q216, a rebound from the contraction in 2015. Import dynamics remained weak and thus net exports will have a 1.6 percentage point growth contribution in FY17 before moderating over the medium-term.

The rating agency further said that public-sector wage hikes, lagged impact of monetary policy easing, and a better monsoon season than the previous two years, should support growth in the near-term, while decent progress on structural reforms including the recent landmark passage of the Goods and Services Tax in parliament should facilitate a turnaround in investment over the medium term.

Rating agency also said that RBI, led by its new Governor Urjit Patel, is expected to cut its policy rate by 25 basis points to 6.25 per cent before the end of 2016, followed by one more rate cut in 2017. Consumer inflation was 5.1 per cent in August 2016, a 1 percentage point drop compared to the previous month. Therefore, it expects the inflation to start gradually increasing to 5.5 per cent by end-2016, 5.8 per cent by end-2017 and 6.0 per cent by end-2018, the upper end of the 4 per cent plus or minus 2 per cent medium-term inflation target range.