New Delhi: Ratings agency Fitch on Friday revised its growth forecast for the Indian economy this fiscal downward to 7 percent from the earlier estimate of 7.5 percent on account of the high interest rate regime and global slowdown.
This comes a day after Finance Minister Pranab Mukherjee said the growth rate would be around 7.2 percent in 2011-12.
"Monetary tightening, coupled with a weaker global economy, is likely to weigh on India's growth. This has prompted Fitch to revise down the real GDP growth forecast to 7 percent for FY'12," Fitch ratings said in a special report on India released today.
Fitch had earlier estimated that India would witness 7.5 percent economic growth this fiscal.
The Indian economy expanded by 8.5 percent in 2010-11. While the government had earlier pegged economic growth at 9 percent for 2011-12, last month it revised the estimate to around 7.2 percent on account of domestic uncertainties and problems in the euro zone and US.
Terming the current fiscal a "challenging one", Mukherjee had yesterday said the Indian economy's growth rate would be around 7.2 percent this year.
The economic growth rate slipped to 7.3 percent during the first half of the current fiscal from 8.6 per cent in the corresponding period a year ago. In the second quarter (July-September), GDP growth slipped to 6.9 percent, the lowest level in over two years.
While the government had blamed the slowdown on the global downturn, India Inc has complained that the high interest rate regime in the country on account of 13 rate hikes by RBI since March, 2013, is responsible for hindering
Fitch said the country is experiencing a cyclical economic downturn, which has been exacerbated by the tight monetary policy.
"The slowdown has been led by a sharp decline in fixed investment activity despite the robust growth in exports. The contrasting performance suggests that a large part of India's current downturn can be attributed to home-grown factors,"
It said that business confidence has suffered from headwinds related to rising costs on account of a rise in interest rates and input prices, besides greater concerns over the investment climate due to incidents of corruption and stalled economic reforms.
The report, however, said the economic growth rate is expected to bounce back to 7.5 percent in 2012-13 and 8 percent in 2013-14 as inflation and interest rates decrease.
Earlier this week, the World Bank revised its India growth forecast downward to 6.8 percent from 8 percent earlier, citing the tight monetary situation and contagion effect of the global downturn.