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
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.
In a scathing attack on media, political analyst Shehzad Poonawala has said that the time of media is gone and anyone with a smartphone and a social media account can be a journalist today. While speaking to Kailashnath Adhikari, MD, Governance Now, during the Visionary Talk seri
India is celebrating the 72nd Republic Day on Tuesday. Attendance at the main celebrations in the capital is limited given the pandemic, yet Covid-19 has not dampened the spirit of the occasion. India’s military might, cultural diversity and social-economic progress will be on display at the majestic
How much time do Indians spend talking on phone? It is on average 761 minutes per month, according to a new report from the Telecom Regulatory Authority of India (TRAI). The telecom regulator released its report, titled ‘The Indian Telecom Services Performance Indicators: July-Septemb
Renowned cardiologist Dr Ramakanta Panda has said that the pandemic has exposed the inadequacy of existing healthcare systems and it is wrong to draw comparisons with Korea, a country with the population equal to that of a single Indian state. While speaking to Kailashnath Adhikari, MD, Gove
The committee of experts appointed by the supreme court to deliberate with the stakeholders on the new farm laws held its first meeting here Tuesday, with one of its members saying that all stakeholders, including individual farmers, will be heard. Hearing a petition on the farm laws enacted
The nationwide vaccination campaign launched Saturday, the largest such exercise in the world, has started setting new benchmarks, with vaccines administered to 2,24,301 beneficiaries in the first two days. “India has vaccinated the highest number of persons on Day1 under its COVID19 v