Fitch lowers India's 2017-18 growth forecast to 6.9%

Fitch said that economic activity "may have been disrupted" in 2Q17 by firms running down inventory ahead of the implementation of the Goods and Services Tax (GST) in July.

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International ratings agency Fitch on Monday lowered India`s growth forecast to 6.9 per cent, as the country`s GDP growth unexpectedly faltered in the second quarter of 2017-18 (2Q17).

The ratings agency had earlier pegged India`s GDP growth at 7.4 per cent.

According to Fitch`s Global Economic Outlook (GEO) report, the downgrade came after the country`s GDP growth faltered to 5.7 per cent (y-o-y) in 2Q17 from 6.1 per cent in the first quarter.

The 2Q17 GDP growth rate was the lowest outturn since early 2013. The report said that economic activity "may have been disrupted" in 2Q17 by firms running down inventory ahead of the implementation of the Goods and Services Tax (GST) in July.

"In light of the poor 1H17 outturns, we have downgraded our forecast for FY17-18 (year-ending March 2018) to 6.9 per cent, a cut of 0.5pp compared to the June GEO (Global Economic Outlook)," the ratings agency said in a report.

"However, activity should accelerate in the second half of the year, as the impact of one-off events (including the demonetisation shock in late 2016 and the GST in July), which have dampened growth in the short term, are expected to wane."

The report predicted a consumption-led revival in growth.

"Motorcycle sales -- a good indicator of rural household consumption -- have gained strong momentum, bouncing back in July and August after having fallen sharply in 1H17," the statement said.

"Investment is also expected to tick up in the quarters ahead, in part bolstered by ramped-up public sector infrastructure spending. The large stock of non-performing loans on bank balance sheets could, however, dampen the outlook for credit growth and business investment.

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