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Fitch Ratings trims India's GDP growth forecast for FY18 to 6.7%

Asserting that the rebound in India's gross domestic product (GDP) growth rate in September quarter was weaker than expected, global ratings agency, Fitch Ratings in its latest report has trimmed its growth forecast for 2017-18 to 6.7% from 6.9% predicted in its September Global Economic Outlook (GEO). It also slashed the FY19 forecast to 7.3% from its earlier projection of 7.4%. The country's economic growth accelerated to 6.3% in the July-September quarter of fiscal year 2017-18 (Q2FY18), from a three-year low of 5.7% in the April-June quarter, as manufacturing revved up and businesses adjusted to the new GST tax regime.

According to the rating firm, growth has repeatedly disappointed in recent quarters, partly because of one-off factors including the demonetisation programme of November 2016 and disruptions related to the implementation of the Goods and Services Tax (GST) in July 2017. However, it expects that the country's economic growth will pick up in the next two years on back of gradual implementation of the structural reform agenda and higher real disposable income. It also expects that recent moves by the government should help support the growth outlook and enhance business confidence.

The US-based ratings agency further said that the two-year bank recapitalisation plan of Rs 2.1 lakh crore, or 1.4% of GDP, is likely to help address the capital shortages that have hindered the banks' lending capacity. It also stated that the Rs 6.9 lakh crore, or 4.5% of GDP, road construction plan may encourage the investment growth outlook. As per the report, inflation still running at low levels on muted food prices and rupee appreciating quite sharply against the US dollar since the beginning of this year give headroom for the RBI to keep interest rates quite low in order to help lift the economy. It added that pick-up in global growth has been better than expected and went on to project 3.2% expansion this year and 3.3% next year.

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