Fitch lowers FY14 growth forecast

Earlier, the rating agency had projected a growth rate of 7%

Fitch Ratings today scaled down its projection for India’s economic growth to six per cent for the next financial year, from its earlier forecast of seven per cent.

Only yesterday, Standard & Poor’s had pegged India’s economic growth at 6.4 per cent for 2013-14, the same as forecast by the Union Budget.

Economists say Fitch’s earlier projection of seven per cent for FY14 was too optimistic. Finance Minister P Chidambaram himself has told the Lok Sabha the country would revert to a seven per cent growth rate only from 2014-15. Fitch also thinks the rate would be seven per cent for FY15.

With all eyes on the Reserve Bank’s monetary review on Tuesday, Fitch said the divergent trends in consumer price inflation and wholesale price inflation might limit the scope to loosen monetary policy in the coming months.

In its Global Economic Outlook report, Fitch attributed the revision to India’s continued economic struggle. It said an impending cyclical recovery will take longer because of tighter fiscal policy and the weak external environment.

The Finance Ministry has targeted to reduce the Centre's fiscal deficit at 4.8% of GDP during 2013-14 from 5.2% in the current financial year.

Fitch also revised down its projections for GDP growth to five% for the current financial year from six% pegged earlier.  

Advance estimates of the Central Statistics Office has already estimated the growth at five%. Hence, Fitch projections do not contain a surprise, at least for the current financial year.

Fitch said the economy's struggles were highlighted by weaker GDP growth of 4.5% in the third quarter of 2012-13.

"A breakdown of GDP by industry suggests that the downturn has become wider as services
activity grew only 6.1%, down from a 7.2% rise in the second quarter of 2012-13.  Agriculture and manufacturing too remained lacklustre, rising 1.1% and 2.5%  in the third quarter compared to 1.2% and 0.8% respectively in the second quarter.