Fitch Ratings on Friday upped India’s growth forecast for the current fiscal to 7.8 per cent, from 7.4 per cent projected earlier.
In its Global Economic Outlook, Fitch, however, flagged tightening of financial conditions, rising oil bill and weak bank balance sheets as headwinds to growth.
“We have revised up our forecast for FY2018-2019 growth to 7.8 per cent from 7.4 per cent on the back of the better-than-expected 2Q18 outturn. India’s growth likely peaked in 2Q18 (April-June) though,” Fitch said.
The Indian rupee (INR) has been the worst-performing major Asian currency so far this year.
“And despite the central bank’s greater tolerance for currency depreciation, interest rates have been raised by more than anticipated,” the global rating agency said in the report.
Fitch also forecast inflation picking up to the upper part of the central bank’s target band (4 per cent, plus-minus 2 per cent) within the forecast horizon on relatively high demand-pull pressures and INR depreciation.
The upward revision in growth forecast comes in the backdrop of GDP expanding 8.2 per cent in April-June quarter, higher than Fitch’s expectation of 7.7 per cent.
“This robust performance was partly attributable to a powerful base effect, with GDP growth dampened in 2Q17 (April-June) by companies de-stocking ahead of the rollout of the goods and services tax,” Fitch said.
It has cut the growth forecasts for FY 2019-2020 and FY 2020-2021 growth by 0.2 percentage points to 7.3 per cent.
“Fiscal policy should remain quite supportive of growth in the run-up to elections likely to be held in early 2019. The investment/GDP ratio has stopped trending down, helped by ramped-up public infrastructure outlays, in particular by state-owned enterprises (SOEs),” it said.