Fitch pares India's growth forecast for FY12 to 7.5%

With the global economic environment turning more adverse, Fitch Ratings has cut its estimate for India’s economic growth from 7.7 per cent to 7.5 per cent for 2011-2012.

For 2012-13, it has estimated India's gross domestic product (GDP) growth at eight per cent, down from previous estimate of 8.2 per cent. This is attributed to weak growth forecasts for all major advanced economies (MAEs). India has hit a difficult part of the cycle, with growth and inflation heading in opposite directions. Real GDP moderated for the third consecutive quarter, rising 7.7 per cent year-on-year in the second quarter of 2010-11, down from 7.8 per cent in the first quarter, Fitch said in a statement on Monday.

It appears rising inflation and interest rates have taken a toll on the Indian consumer. Private consumption rose 6.3 per cent in the second quarter of 2010-11, down from eight per cent in the first quarter. While India is not a trade-oriented economy, the deterioration in global growth prospects would have knock-on effects. Fitch has said growth in emerging markets would moderate. However, despite having more robust growth prospects, 2011 and 2012 estimates for Brazil, Russia, India, and China have been revised downwards, signalling emerging markets would not de-couple from MAEs. Overall, the agency has scaled down world growth estimates, based on market exchange rates, to 2.6 per cent in 2011, compared with 3.1 per cent in the previous estimate and 2.7 per cent in 2012 compared with 3.4 per cent previously.

Inflation is likely to remain high, with commodity prices showing no signs of abating and the rupee falling 6.4 per cent against the dollar since end-June. Non-food manufacturing WPI has also risen. Fitch estimates non-food manufacturing WPI rose 7.8 per cent in August, up from 7.6 in July.