Fitch expects India's GDP to grow at 7.7%; affirms ratings

Mumbai: Global rating agency Fitch has affirmed India’s sovereign ratings at ‘BBB-’ as India exhibits one of the highest real GDP growth rates in the sovereigns space. The economic growth rate is expected to accelerate to 7.7% in the current fiscal, the ratings agency said late on Monday.

“Its five-year average growth is among the 10 highest of all rated sovereigns and the 7.6% real GDP growth in the financial year ended March 31, 2016 exceeds the ‘BBB’ category median of 3.3%,” the rating agency said.

Fitch also raised various concerns, including weak private investment and monetary policy transmission.

“The affirmation of India’s sovereign ratings balances a strong medium-term growth outlook and favourable external balances against a weak fiscal position and still-difficult business environment.

“However, the latter is likely to gradually improve with implementation and continued broadening of the government’s structural reform agenda,” it said in a statement.

India’s relatively strong external balances make the country less vulnerable to external shocks than many of its peers. The foreign reserves buffer is solid at 8.3 months of current external payments, it added.

The ratings agency forecasts real GDP growth to slightly accelerate to 7.7% in 2016-17, and 7.9% in 2017-18, resulting from an expected pick-up in consumption in both urban and rural areas after a civil-servant wage hike of 24%, and the strong likelihood of stronger rainfall than in the previous two poor monsoon years.

Further, apart from structural reforms, passage of key bills, including Goods and Services Tax (GST) in Parliament, slowing inflation, and policy rate cuts of 1.50% in total since January 2015, may also contribute to growth, even though weak bank balance sheets continue to impair monetary transmission. At the same time, weak private investment indicates that the economy is still not firing on all cylinders.

India is also less vulnerable to a severe slowdown scenario in China, as India’s exports to China comprise only 3.5% of total exports and its more domestically based economy is not part of the Asian supply chain.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.