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

App aid for healthcare

Courier services and sales teams have soared into efficiency using smartphone apps to monitor deliveries, visits, timeliness and performance. Taking a leaf from their book, Gujarat is equipping accredited social health activists (ASHAs) and midwives with smartphones and an app to bring down infant and ma

Government divests 12% stakes in RITES; IPO opens on June 20

The railway infrastructure consulting PSU, RITES Limited is coming up with its IPO on June 20, 2018, as the government of India is selling its 24 million equity shares (12%) stake in the Mini Ratna PSU. As an initial public offering 25,200,000 equity shares are offered in which employee reservation portion

“This initiative is for future generations”

Speaking to Governance Now, Gujarat chief minister Vijay Rupani elaborates on the Sujalam Sufalam scheme to rejuvenate talavdis and desilt reservoirs and lakes. He also speaks on water, politics, and cons

Water by the pondful

It’s 10 am and in Dhandhuka town of Ahmedabad district, the sun is already scorching. A dry lake, which was desilted and deepened a few weeks back, has been turned into a venue for a fete. Shamianas have been erected, women in bright sarees and men and children in their best clothes flock the venue,

Thugs of Hindustan

This story may sound apocryphal but it was recounted by LK Advani in one of his casual conversations. Talking about Morarji Desai, he said that despite his idiosyncrasies, he was a man of impeccable integrity. To buttress his point Advani recalled this incident: After the Janata Party formed the government

IRCTC listing still lingering despite clearance in 2017

Ministry of railways’ decision of holding the listing of Indian Railway Catering and Tourism Corporation (IRCTC) has exposed its seriousness in listing its public enterprises in stock exchanges. Although the decision was taken one year back, the national transporter does not have a com

Current Issue

Current Issue

Video

CM Nitish’s convoy attacked in Buxar

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter