India only BRIC country to see growth pick up in 2014; China to slow down: Fitch
NEW DELHI: Expecting better investment climate in India in the years ahead, Fitch on Wednesday said that GDP growth will pick up to 5.6% in FY15. "India will be the only BRIC country where growth picks up in 2014, to 5.6%, with an expected further increase to 6.5% in 2015 and 2016 due to an expected improvement in business environment," Fitch said.
On the other hand, the ratings agency sees the Chinese economy witnessing a slowdown in the years to come. Fitch expects China's GDP growth to moderate to 7.2% in 2014, 6.8% in 2015 and 6.5% in 2016 as it gradually rebalances while seeking to contain leverage.
Commenting on the Indian economy, Fitch said, "Investment is likely to rise now that political uncertainty has disappeared since the new government came to power last May."
According to Fitch, the expected pick-up seems supported by the 5.7% GDP growth in Q2 (versus 4.6% in Q1), although the election results were announced halfway through the quarter. "The growth impulse of government spending in the run-up to the elections that contributed to growth is likely to be one-off, but a positive sign is an increase in capital expenditure by 7%. The recent rise in GDP growth was supported by industry and financial services, as well as a solid performance of the agricultural sector, not yet affected by the current weak monsoon," it added.
Fitch went on to say that the new government has started rolling out a number of policies, which may improve the efficiency of the bureaucracy and strengthen the investment climate. "However, lifting GDP growth to substantially higher levels would require large productivity gains through implementation of far-reaching reforms by the central and state governments related to governance and product and labour markets, as well as reduction of infrastructure bottlenecks," Fitch explained.
Fitch is of the opinion that the potential for change is substantial, as India ranks the lowest of all 'BBB-' rated sovereigns on the World Bank's Ease of Doing Business indicators and its governance indicators compare unfavourably with peers.
Talking about inflation, Fitch said that the weak monsoon season has had limited impact so far on inflation. "Consumer price inflation (CPI) is gradually declining, but is still high compared with peers at 7.8% in August 2014. Since inflation expectations are more closely related to CPI, the Reserve Bank of India focuses on CPI and targets a "glide path" to 6% by January 2016. In the longer run, a credible low inflation environment would benefit growth by improving the investment environment," it concluded.
Meanwhile, Fitch Ratings forecasts global economic growth to increase to 3% in 2015 and 3.1% in 2016, from 2.6% in 2014, mainly driven by strengthening recovery in the US and eurozone. "However, the growth outlook has weakened somewhat since the June Global Economic Outlook (GEO) and risks remain skewed to the downside. Growth in emerging markets (EMs) has been revised down again, to 4% in 2014, the weakest since 2009, although we project it to reach 4.4% in 2015 and 4.7% in 2016," Fitch said.
Maapithas Maapithas (AUCKLAND)
RISE IN INVESTMENT AS EXPECTED HAS NOT HAPPENED AND UNLESS THERE IS DRASTIC REFORMS IN TAXATION AND REGULATION OF MONEY MARKETS
Ravindra Shetye (Mumbai)
We talk about "MAKE IN INDIA". First requirement for MAKE IN INDIA is to set up large number of large and small "FACTORIES", where the MAKING will take place. Upto recently looking at Arcellor Mittal and POSCO struggling for seven years and ultimately dropping the projects, each of 40000 (FORTY THOUSAND) crores shows that a DRAMATIC CHANGE is required to ease setting up the FACTORIES. Otherwise MAKING will be restricted to SPEECHES.
Avinash Yadav (Unknown)
We need to reach that figure of 9% in next 2-3 years we need to work harder.
Gopalan .Ananthapadmanabhan (Bangalore 560036)
This growth rate of 5 to6% is a recovery and we should march with confidence to 6%+ if we want to provide healthy economy
TRKN(Pune) Replies To Gopalan .Ananthapadmanabhan
The aim should be for 7 - 8% growth.
RanjanKumar Tripathy (Rourkela)
Considering the speed of decision making,more investments expected.
TRKN(Pune) Replies To RanjanKumar Tripathy
THERE ARE SIGNS ALREADY.