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  

Illustration:Ashish Asthana

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

Make Godse’s statement public, but don’t idolise him

Nathuram Godse, who was brought up by his parents as a girl in the first few years of his life, has been reviled for decades for fatally shooting the apostle of peace Mahatma Gandhi. What Godse said during the Gandhi assassination trial has not been made public, giving rise to considerable speculation.

First coal rake flagged off from NTPC’s coal block in Hazaribagh

The first coal rake of NTPC’s Pakri-Barwadih coal mine at Hazaribagh was flagged-off by finance minister Arun Jaitley, Jharkhand chief minister Raghubar Das, union minister of state for power, coal, N&RE and mines Piyush Goyal, and minister of state for civil aviation Jayant Sinha, at Ranchi on

AIMIM to contest Pune civic polls for the first time

“Our corporator is missing,” reads a banner on a defunct lamppost in Shaniwar Peth – a densely populated area in Pune, the second largest city of Maharashtra after Mumbai. Many more sprang up in the nearby alleys, a couple of months before the municipal corporation polls on February 21.&n

How a PSU takes land for mining

On October 1 last year, Mehtab Alam Ansari, 30, who worked as a tailor in Delhi, had arrived in his village, Chepa Khurd in Barkagaon tehsil of Harazibagh district, to celebrate Eid with his family. That morning, he was nearing Dadi Kalan, a neighbouring village, to meet an acquaintance when he heard gunsh

Should Nathuram Godse`s statement in Gandhi assassination trial be disclosed?

Should Nathuram Godse`s statement in Gandhi assassination trial be disclosed?

Demonetisation: When cash played peek-a-boo

Post-demonetisation, cash did the Houdini vanishing trick at ATMs. With currency notes playing hide and seek, life was sheer misery. Things improved a bit, but the situation is back to square one. The ATMs are running dry, yet again. Rajiv Bajaj, scion of the family that makes hugely popular

Video

Digital Transformation Summit

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter