Fitch upgrades economic growth forecast to 8.7% this fiscal

Buoyed by 8.9 per cent growth in the first half, global consultancy Fitch today revised upwards its growth forecast for India to 8.7 per cent this fiscal, from its earlier estimate of 8.5 per cent.

This is almost similar to the growth projection of 8.75 per cent, plus or minus 0.35 per cent made by the government in its mid-year Economic Review earlier this month.

For 2011-12 and 2012-13, however, Fitch said that economic growth is likely to fall further to 8.5 and 8 per cent, respectively.

"Fitch has revised up its forecast for India's GDP growth to 8.7 per cent for financial year ending March 2011 from 8.5 per cent as economic activity has proved more buoyant than previously expected," it said.

The consultancy had earlier forecasted an annual growth of 8.5 per cent for the current fiscal.

"GDP rose 8.9 per cent year-on-year in Q3, identical to the Q2, underlining the strength of the economy," Fitch further added.

The Indian economy had grown by an average of 8.9 per cent during the April-September period.

Fitch said that economic activity in the country remains broad based, with public and private consumption, fixed investment and exports registering high single-digit growth.

It, however, cautioned against inflationary pressure in the economy and said the government will have to undertake measures for fiscal consolidation in the next Budget in February.

"With a strong outlook for both growth and inflation, Fitch expects the authorities to continue tightening policy in the coming quarters. The agency expects RBI to continue raising its key policy rates in early 2011, and that the government will deliver some fiscal consolidation when it announces its FY12 Budget in February 2011," it said.

It added that such a policy will slow down the economic growth to 8.5 per cent in 2011-12 and 8 per cent in 2012-13.

The wholesale price inflation was 7.48 per cent in November, the lowest in 11 months but increase in prices of onions, a major component of the food basket, besides rising global crude oil prices, have brought concern to the government and consumers alike.

"Against such a robust economic backdrop, inflationary pressures remain pronounced... Although this (current inflation) is below the recent peak rate of 11 per cent in April, the Reserve Bank of India (RBI) still faces a battle to anchor inflation expctations...," Fitch said.

On the global front, the Fitch report says despite significant financial market volatility, global economic recovery is on track, largely due to the accommodative policy support in the developed markets and continued emerging-market dynamism.

Accordingly, it has marginally revised upwards its projection for world growth to 3.4 for 2010 (from 3.2 per cent), 3 for 2011 (from 2.9 per cent), and 3.3 for 2012 (from 3 per cent) compared to its last forecast in October.

On the US, Fitch has raised growth forecast by 0.6 per cent in both 2011 and 2012 to 3.2 and 3.3 per cent, respectively. On the positive side, it also sees the US unemployment rate moderating to 9.1 per cent in 2011 and 8.7 per cent in 2012.

Despite the improved outlook, it says the US recovery will continue to be mild by historical standards in the light of still weak labour and housing markets.

But it has made only a marginal revision to Japan forecasts, revising up expected 2010 GDP growth to 3.2 from 3 per cent after Q310 growth came in at 1.1 per cent against the agency's expectation of 0.6 per cent, while revising 2011 growth down to 1.5 from 1.6 per cent, as persistently weak domestic demand continues to weigh on Japanese growth in the medium-term.