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Global rating agency Fitch on Friday pegged India's growth at 5.5 per cent in the current financial year and six per cent in 2015-16, and affirmed the country's rating outlook at stable level.
"Fitch forecasts real GDP growth to rise from 4.7 per cent in 2013-14 to 5.5 per cent in FY 2015 and 6 per cent in FY 2016," the agency said in a statement. However, Fitch said the Indian economy has lost much of its dynamism in recent years and the average is coming down. The growth slowed to a decade low 4.5 per cent in 2012-13. India's five-year average is growth is 6.7 per cent.
The agency has affirmed India's long-term foreign and local currency issuer default rating (IDR) at BBB- with stable outlook, indicating low default risk. It further said "the course of the Indian economy is uncertain" in the light of the on-going Parliamentary elections. Election results will be out on May 16.
"Once the next coalition starts implementing its economic policies, it will become clearer whether the economy can return to a higher sustainable growth path or whether it remains stuck at current levels. A policy push that includes structural and governance reforms, fiscal consolidation and efforts to rein in inflationary pressures would likely require a coherent coalition with a strong electoral mandate," Fitch added.
Since the outlook is stable, Fitch does not currently anticipate developments with a high likelihood of leading to a rating change. However, future developments that could result in negative rating action include deviation from the fiscal consolidation path, greater than expected deterioration in the banking sector's asset quality.
Fiscal consolidation, it said, remains critical to the rating. The central government seems to have met its Budget deficit target of 4.8 per cent of gross domestic product (including privatisation receipts) for FY 2014, despite the looming elections, Fitch said.
"But this was only achieved through substantial one-off measures, such as special dividends by state companies, and deferral of bill payments and capital expenditure, which raise questions about the feasibility of a fiscal consolidation process over the long run," it said.
Fitch said India's standards of governance and business environment are relatively weak and constrain its investment potential.
It expects a gradual pick-up in investment in its baseline scenario once the election uncertainty dissipates. On clearance of close to 300 investment projects by the Cabinet Committee on Investment, Fitch said "some of these projects may no longer be viable or may still face difficulties at the state level".
