Fitch cuts FY17 growth forecast to 7.7% from 8%

It expects another 0.25% cut in monetary policy as the government decided to stick to the fiscal deficit roadmap

Fitch Ratings on Monday cut India's economic growth forecast for next financial year to 7.7 per cent from its earlier estimate of eight per cent.

The Economic Survey had projected FY17 economic growth at seven to 7.75 per cent.

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However, the rating agency maintained gross domestic product (GDP) projection for the current financial year at 7.5 per cent, slightly lower than official estimate of 7.6 per cent.

Fitch had in December forecast an 8 per cent GDP growth in 2016-17, supported by the government's beefed up capex spending and gradual implementation of a broad-based structural reform agenda.

In its latest Global Economic Outlook (GEO), Fitch said gradual recovery in 2016-17 and 2017-18 would be supported by higher real disposable income, assuming a normal monsoon after two years of below-average rainfall and a substantial wage increase for central government employees.

"Growth is expected to gradually accelerate to 7.7 per cent in FY17 and 7.9 per cent in FY18. This implies minor downward revisions from the December GEO but leaves India at the top of the global growth ladder," it said.

Fitch said it was keeping the GDP growth forecast for the fiscal year ending March 2016 at 7.5 per cent. "The gradual implementation of the structural reform agenda is expected to contribute to higher growth, even though progress is lacking so far on big-ticket reforms such as the Land Acquisition Amendment Bill and the Goods and Services Tax," it said.

Fitch observed that implementation of legislative reforms has so far been difficult given the government's limited support in the Rajya Sabha, but executive reforms continue to be rolled out.

"The Budget for FY17 contained some further announcements of reforms, including measures related to the FDI (foreign direct investment) regime, the financial sector and agriculture, illustrating that the government continues to gradually broaden its reform agenda," it added.

Fitch said it expected another 0.25 per cent cut in monetary policy, as the government has decided to stick to the fiscal deficit road map for the next financial year.

As regards global growth, Fitch said though there are widespread cuts in GDP forecasts, but it doesn't point to global recession in 2016. It forecast economic expansion at 2.5 per cent in 2016, the same as in 2015.