New Delhi: Fitch Ratings Monday lowered India's economic growth forecast for next fiscal to 7.7 percent, but maintained the GDP projection for current fiscal at 7.5 percent.
Fitch, in December, forecast an 8 percent 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 percent in FY'17 and 7.9 percent in FY'18. 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 is keeping the GDP growth forecast for the fiscal year ending March 2016 at 7.5 percent.
"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 regime, the financial sector and agriculture, illustrating that the government continues to gradually broaden its reform agenda," it added.
Fitch said it expects another 0.25 percent cut in monetary policy, as the government has decided to stick to the fiscal deficit roadmap for next fiscal.
As regards global growth, Fitch said though there are widespread cuts in GDP forecasts, but it's not global recession in 2016. It forecast economic expansion at 2.5 percent in 2016, the same as in 2015.
Fitch said 1.25 percent cut in interest rate in 2015 by RBI is likely to feed through to higher GDP growth, even though monetary transmission is impaired by relatively weak banking sector health.
"We expect the Reserve Bank to remain keen to avoid a significant deviation from the glide path to its inflation target, as it is still building a track record for its new monetary policy framework," it added.
As per Finance Ministry's estimates, Indian economy will clock 7-7.75 percent growth rate in 2016-17, as against 7.6 percent in current fiscal ending March 31.
As regards global growth, Fitch said though there is widespread cuts in GDP forecasts, but it's not global recession in 2016. It forecast economic expansion at 2.5 percent in 2016, the same as in 2015.
This represents a downward revision of 0.4 percentage points to 2016 global growth from Fitch's December 2015 forecasts.
While the biggest downward revisions to country forecasts have been to emerging markets ? namely, Brazil, Russia and South Africa ? the forecast adjustments have been across the board, it added.
Fitch said it expects Brent oil price to average at USD 35 per barrel in 2016 and USD 45 in 2017, down from USD 55 and USD 65 respectively in December.
"These revisions reflect a strong inventory build, higher-than-expected OPEC production in January and deteriorating prospects for world GDP growth," Fitch added.
Emerging markets are the epicentre of slowdown, Fitch said, adding the biggest downward revisions to country growth forecasts have been in country's like Brazil, Russia and South Africa.
"The investment slowdown in China and sharp expenditure compression in major commodity-producing countries continue to reverberate around the world economy," it added.
As regards China, Fitch expects growth to slow from 6.9 percent in 2015, to 6.2 percent in 2016 and further to 6 percent in 2017.