Acche din in around the corner? Economy may expand at 5.6% in FY15, says Fitch

New Delhi, Nov 18: India's economic growth is expected to pick up to 5.6 per cent in the current fiscal on account of structural reforms being rolled-out by the government, Fitch Ratings said today.

However, factors such as pace of fiscal consolidation and structural reforms, investment and inflation environment as well as banking sector's asset quality form downside risks to the economy, the global ratings agency said in a release. "Fitch expects real GDP growth to pick up to 5.6 per cent in FY15 and 6.5 per cent in FY16 from 4.7 per cent in FY14," it said.

The Indian economy had lost much of its dynamism in recent years due to weak investment, however, a gradual pick-up is expected now, Fitch said. "...a gradual pick-up in investment is expected, as election-related uncertainty has disappeared, and structural reforms are being gradually rolled out," it added.

Fitch said India's current account deficit (CAD) was a concern for investors until mid of 2013, but it has narrowed now due to policy rates hikes and measures including curbs on gold imports through duty hikes (partially reversed). The report said high foreign reserves provide a strong buffer to the Indian economy. India's foreign currency reserves stood at USD 495.5 million as of October 24, 2014.

India's fiscal deficit touched 82.6 per cent of the Budget estimates for 2014-15 to cross Rs 4.38 lakh crore at the end of September. For entire 2014-15, fiscal deficit -- the gap between government expenditure and revenue -- has been pegged at Rs 5.31 lakh crore or 4.1 per cent of GDP.

To reduce the fiscal deficit to the 7-year low level, the government had announced a slew of austerity measures aimed at cutting non-plan spending by 10 per cent. Also, inflation based on the Wholesale Price Index cooled to a 5-year low of 1.77 per cent in October driven by softening prices of fuel and food items. At the same time, retail inflation, based on Consumer Price Index, also eased to 5.52 per cent at end of October.

PTI