Fitch Ratings Still Favours India’s Growth compared to other Countries even after Lowering GDP Growth Rate Forecast to 4.6%

Fitch ratings still favor India’s growth compared to other countries even after lowering GDP forecast. Citing the business deceleration, credit squeeze and decreasing consumer confidence, another credit rating agency have joined the trail of low GDP forecast.

GDP Growth Cut

Fitch Ratings slashed India’s GDP growth rate forecast from 5.6% to 4.6% for FY 2019-20. It also expected a moderate slippage of 3.3% in the fiscal deficit target. As per its report, the general debt level of government will reach to 70.4% of GDP in FY20. Besides, the fiscal deficit of both the center and the state government will combine to 7.5% of GDP. However, it affirmed a stable outlook on India’s medium-term growth as compared to other developing countries. Similarly, standards and poor also maintained a stable outlook with the lowest investment grade score for India.

India’s Growth Recovery Estimates

It expects growth to recover in FY 2021 with 5.6% of GDP growth rate and to 6.5% in FY 2022 with the help of easing monetary and fiscal policies. Further, it stated that RBI managed to maintain the headline inflation within the medium term range of 4% +/- 2%. The government’s decision of the corporate tax rate cut will decrease revenue by 0.7%. The government is under a pressure to stimulate the economy. It hoped to stabilize it by divesting organizations such as Air India and Bharat Petroleum.

Current Situation of India’s Growth

Citing the inflation uptick to 5.5% which mainly reflects in food, it expects RBI to cut its policy rates by 65 bps in 2020 even after 135 bps easing in February. It further said that the government reforms are likely to reveal results in the medium-term rather than in the short term. Further, citing India’s global importance, it said that India has been less affected by world trade tensions. The government’s decision of increasing tariff has managed to decrease imports that helped somewhat in the slowdown. The rating agency expects further financial loosening due to the problem of NBFCs.

In conclusion, though India has some lagging structural factors, weak financial sector, and high public debt, it will recover in the future.

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