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

Reopening: Old guidelines extended to November

As the Covid-19 situation continues to improve in India, the ministry of home affairs (MHA) has decided to continue the Guidelines for Reopening, which have already done away with nearly all of Lockdown restrictions in areas outside the containment zones. The MHA issued an order Monday and e

India records lowest new cases in three months

After a scare in September with the number of daily fresh cases inching above 90,000, India seems to have gone down the peak, with several key parameters giving cause for relief just in time for the annual festive season. The new confirmed cases in the 24 hours to Tuesday morning have fallen below 36,500 (

India’s case fatality rate lowest since Janata curfew

The annual festive season has brought good news for India: the country’s case fatality ratio has gone down to touch 1.5 percent, and the number of deaths per day has dipped below 500 in the 24 hours to Monday morning – bringing the situation closer to the number before the lockdown was imposed

“Script is the real hero”

Basking in the success of the new web series, ‘Scam 1992: The Harshad  Mehta Story ’,on SonyLIV, the OTT platform from Sony stable where the lead actors are new faces, NP Singh, MD and CEO of Sony Pictures Networks, has said that the script is the new hero. He credited the s

India’s active cases below 10% of total cases for three days

India’s trend of steadily decreasing active cases continues unabated. The number of Active Cases has remained below 10% of the total cases for the last three days, suggesting only one in 10 cases is active Covid-19 patient. The active cases comprise merely 9.29% of the total positive c

Cabinet clears bonus for non-gazetted employees

The union cabinet chaired by prime minister Narendra Modi on Wednesday gave its approval to pay productivity linked bonus (PLB) for 2019-20 to 16.97 lakh non-gazetted employees of commercial establishments like Railways, Posts, Defence, EPFO, and ESIC, with a financial implication of Rs.2,791 crore.

India Police Virtual Summit and Awards 2020

Archives

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter