Fitch joins Moody’s, warns of weak business environment

Growth forecast lowered to 7.8% but still India will go past China as reforms will take time sink in

GN Bureau | July 2, 2015


#moody   #fitch   #rating   #reforms   #narendra modi   #china   #india  


After global rating giant Moody’s warning that there were growing concerns about risk of policy stagnation in India and “some disappointment” over the pace of reforms under the Modi government, another rating agency Fitch has said the country’s business environment is relatively weak.

Lowering its growth forecast for India to 7.8 per cent this fiscal, Fitch in its Global Growth Outlook report, Fitch said the Indian government’s “strong drive to implement structural reforms” should lead to improvements in the business environment and, over the time, to a pick-up in investments.

However, the saving grace is that India would still grow faster than China this year. Fitch said, it continues to expect a continued acceleration in the Indian economic growth rate, from 7.3 per cent in fiscal 2014-15, which was below Fitch estimate of 7.4 per cent. “Fitch continues to expect acceleration in Indian growth, but there are some indications that it may be somewhat slower than previously expected.”

The agency felt that translation of the reforms into higher real GDP growth will depend on the actual implementation. “India’s business environment is relatively weak compared with peers and will take time to turn round,” it added.

“Hence, Fitch has lowered its real GDP growth forecast for India to 7.8 per cent in FY16 from 8 per cent, and to 8.1 per cent in FY17 from 8.3 per cent.

“Capital expenditure has not yet picked up, rural and export demand is weak, and the translation of monetary policy loosening into lower bank lending rates is limited. Downside risks to growth relate, for instance, to below-average rainfall during this year’s monsoon season, although the first three weeks of June recorded 16 per cent above-average rainfall,” it said.

About the revision of the GDP data series by the Central Statistical Office, Fitch said the new growth levels and a pick-up starting already in mid-2013 remain difficult to reconcile with indicators that show still low investment levels, weak corporate balance sheets and a rise in banks’ non-performing loans.

Fitch further said the risks to inflation are tilted to the upside and relate to below-normal monsoon rains, crude prices and external environment volatility, as indicated by the RBI.

“With these risks clearly on the RBI’s radar, the window for further rate cuts seems closed for the coming months. Yet, the RBI may still respond with another rate cut later in the year if data show these risks have declined and inflation would continue to move broadly in line with the announced glide path.”

As regards China, the report said, the growth rate “is in a gradual structural slowdown and our unchanged growth forecast is 6.8 per cent in 2015, 6.5 per cent in 2016 and 6 per cent in 2017″.

“India’s GDP growth will surpass China’s this year for the first time since 1999, and accelerate to 8 per cent in 2016 and 8.1 per cent in 2017. Recovery from the recession in Russia and Brazil will be weak, with growth rates of only 1.5 per cent by 2017,” the report said.

Why China will fall short?

China's policy-driven economic rebalancing, in contrast with India, should result in a steady reduction in growth to 6.0% by 2017, down from a 9.3% average over 2005-2014. Policy efforts to reduce shadow financing, reform local government borrowing and curb over-investment in real estate will continue to weigh on the economy and contribute to the gradual trending down in growth.

The rebalancing is positive for economic stability in the long run. For now, the build-up in fixed-asset investment in the real estate sector remains a key source of macroeconomic risk. However, recent data does point to a diminishing risk of an outright collapse in activity in the sector. Monetary easing so far this year should contribute to a pick-up in growth in the second half of 2015, though activity data in May points more to stabilisation as opposed to acceleration.

Comments

 

Other News

Sowing wheat earlier can help increase yields in India: US researcher

Yield gaps in wheat production in India can be countered with an earlier sowing date, says a University of Michigan researcher.   Using a new way to measure wheat yields, Meha Jain, assistant professor at the U-M School for Environment and Sustainability, found that the wheat yie

Giving birth as a Baiga

Kharpariya village, about 50 km from the headquarters town of Madhya Pradesh’s Mandla district, is like many villages in the region, home to the Baiga, deemed a particularly vulnerable tribal group (PVTG) for whom permanent contraception methods are banned to prevent extinction. However, care for p

Being the prime minister’s brother

Somabhai Modi says he remembers only one occasion when he offered his younger brother prime minister Narendra Modi advice regarding work. This, he says, was when Modi was chief minister of Gujarat. After one of his weekly grievance redressal sessions, the then chief minister had enquired after the well-b

Should ration cards not linked to Aadhaar be rendered ineligible?

Should ration cards not linked to Aadhaar be rendered ineligible?

INS Kiltan commissioned into Indian Navy

 INS Kiltan, the third anti-submarine warfare (ASW) stealth corvette built under project 28 (Kamorta class), was commissioned into the Indian Navy by defence minister Nirmala Sitharaman at the naval dockyard in Visakhapatnam.    The anti-submarine warfare stealth corvet

SAIL`s special grade steel used to build stealth corvette

Maharatna enterprise, Steel Authority of India Ltd. (SAIL) has supplied defence grade micro-alloyed grade of steel (DMR 249A) steel plates for the indigenously built anti-submarine warfare (ASW) stealth corvette INS-Kiltan commissioned into Indian Navy.    SAIL’s integ



Video

Grand Diwali celebrations in Ayodhaya on eve of diwali

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter