By India Today Business Desk: Fitch Ratings has raised its growth forecast for the Indian economy to 6.3 per cent for the current fiscal year, from 6 per cent earlier, on the back of robust growth in the first quarter and strong near-term momentum.
The ratings agency said that India will be affected to an extent by slowing global trade, but that the full impact of the Reserve Bank of India’s (RBI) 250 basis points (bps) of monetary tightening is still to be felt.
Fitch added that the government’s push to increase capital expenditure, moderate commodity prices and robust credit growth are expected to support investment.
“Slowing inflation should also start to help consumers over time and households have now turned more optimistic about future earnings and employment,” the ratings agency said.
Fitch said that although inflation has eased in recent months, the monsoon outlook and the potential impact of El Nino posed a risk in the second half of the year.
India’s retail inflation eased to 4.25 per cent in May from 4.7 per cent in April, firmly within the RBI’s inflation band of 2 per cent-6 per cent for the third straight month.
“With growth expected to moderate further, and inflationary pressures easing, we expect the RBI to pause its rate cycle for the time being before cutting early next year – a change from our previous call of one more 25 bps increase to 6.75 per cent ,” Fitch wrote.
The upgrade of India’s growth forecast comes as a welcome boost for the government, which is seeking to boost economic growth and create jobs. The government has set a target of growing the economy by 7.5 per cent in the current fiscal year.
The upgrade also comes at a time when India is facing a number of challenges, including slowing global trade and rising inflation.
However, Fitch said that the government’s policies are helping to mitigate these risks and that India is well-placed to maintain its growth momentum in the coming months.