Fitch cut India’s growth forecast for the current fiscal for a second time in a row to 6.6 per cent as manufacturing and agriculture sectors showed signs of slowing down over the past year.
“We see growth for FY2019-2020 printing at 6.6 per cent, before stepping up to 7.1 per cent in FY 2020-2021 and 7.0 per cent in FY 2021-2022,” Fitch Ratings said in its latest Global Economic Outlook. RBI has projected a growth rate of 7 per cent for the current fiscal. India’s GDP growth declined for the fourth consecutive quarter in January-March, with the economy expanding by 5.8 per cent, down from a cyclical high of 8.1 per cent in the March quarter of 2018.
“This is the lowest growth out-turn in five years. The slowdown over the past year has been driven by steadily cooling activity in the manufacturing sector and, to a lesser extent, agriculture. Weaker momentum has been mainly domestically driven, though export growth has also faltered more recently,” Fitch said.
It said RBI has cut interest rates by 0.25 per cent in its June meeting - the third cut so far this year- in the face of weak growth momentum and contained inflation. “We expect another 25 basis point cut later in 2019, which will push the policy repo rate down to 5.50 per cent. Monetary and regulatory easing from the RBI, along with a recovery in portfolio inflows, should support a recovery in credit to the private sector and reverse the drag from the negative credit impulse,” Fitch added.
It said lower lending by non-bank financial companies has weighed on growth in infrastructure and consumption, even though banks have partially compensated by ramping up their lending to the private sector.