Reforms to push India's growth to 8% by FY19: Fitch

Urban consumption is likely to be supported by a hike in civil servant wages, after the 7th Pay Commission recommended a wage rise of almost 24%.

The Indian economy is estimated to have grown by 7.6% in 2015-16. Photo: IANS

India's economic growth will accelerate to 8% by 2018-19 fiscal as gradual implementation of structural reforms will contribute to higher growth, Fitch said on Thursday.

In its latest Global Economic outlook, Fitch Ratings said it expects India's real GDP growth to rise to 8% by 2018-19, from 7.9% in 2017-18 and 7.7% in 2016-17. The Indian economy is estimated to have grown by 7.6% in 2015-16.

"Gradual implementation of the structural reform agenda, which continues to broaden, is expected to contribute to higher growth. Passing of the new Bankruptcy Code in both houses of Parliament in May 2016 shows that implementation of big ticket reforms is possible in India," it said.

TRENDING NOW

Fitch also said that reforms related to land acquisition and a Goods and Services Tax have not passed thus far. The Reserve Bank of India's policy rate cuts of 1.50% in total since the beginning of 2015 are likely to feed through to higher GDP growth, Fitch said.

It, however, added that monetary transmission is impaired by relatively weak banking sector health. It said higher real disposable income is expected to contribute to faster GDP growth.

In rural areas, purchasing power will be supported by above-average rainfall from the monsoon, as expected by the India Meteorological Department, after two years of below-average rainfall.

Urban consumption is likely to be supported by a hike in civil servant wages, after the 7th Pay Commission recommended a wage rise of almost 24%.

With CPI at 5.4% in April and WPI inflation turning positive, Fitch said the stronger than expected inflationary pressures make further policy rate cuts unlikely in the very near term.

As regards global growth, Fitch said emerging market weakness and declining investment spending by global energy producers continue to take a heavy toll on world growth.

Fitch forecast it at 2.5% in 2016, unchanged from 2015. Global growth should pick up to around 3% in 2017 as GDP stabilises in Russia and Brazil and the drag from energy adjustments starts to fade. It projected global growth to remain around 3% in 2018, with Fed rate hikes picking up pace.

An intensification of external shocks would be a bigger threat to the economy, but the near-term emerging market growth picture is looking a little bit better. It said against the backdrop of sluggish growth and very low headline inflation rates in the advanced economies there have been increasingly loud calls for policy makers at the major central banks to ramp up stimulus efforts even further.

The possibility of 'helicopter money' involving a fiscal expansion funded directly by central banks printing money and/or a write-off of the portion of government debt held by central banks to ease fiscal policy constraints has also been discussed by many commentators.

"Helicopter money would have major implications for central bank independence, increasing the threat of fiscal dominance of monetary policy. It has already been virtually ruled out by a number of central bank officials," Fitch said.

TAGS: