Fitch raises India’s growth forecast to 7.8% from 7.4%

In a statement on Friday, Fitch Ratings projected that India will grow at a rate of 7.8%, an increase from 7.4% earlier. However, for fiscal 2019-20 and 2020-21, growth forecast has been cut by 0.2 percentage points to 7.3%

“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.

India’s GDP in April-June quarter expanded to 8.2%, higher than Fitch’s expectation of 7.7%.

“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.

However, sighting high demand-pull pressures and Rupee depreciation Fitch said it expects inflation to rise to the upper end of the central bank’s target band (4 per cent, plus-minus 2 per cent).

“The economic outlook is subject to several headwinds, including tightening of financial conditions, a rising oil bill and weak bank balance sheets,” it added.

Fitch Rating also said in its report that, “despite the central bank’s greater tolerance for currency depreciation, interest rates have been raised by more than anticipated.”

The ongoing trade war between US and China can very well affect growth rate of various economies. “The recently announced imposition of US tariffs on a further USD 200 billion of imports from China will have a material impact on global growth and, even though we have now included the 25 per cent tariff shock in our GEO baseline, the downside risks to our global growth forecasts have also increased,” Fitch Chief Economist Brian Coulton added.