Fitch downgrades growth forecast for Indian economy to 7.7 per cent

Mumbai: Global ratings agency, Fitch, has further lowered its growth forecast for the Indian economy for 2011, to 7.7 per cent, from 8.3 per cent previously. The downgrade comes on the back of reduced domestic growth and demand, which have been impacted by the strict anti-inflationary policies of the Reserve Bank of India.

"The growth has clearly hit a soft patch, as GDP grew only 7.8% in the first quarter of 2011 (Q4 of FY11), down from 8.4% in Q4, FY10, and 8.9% in Q3, FY10," said Fitch Ratings in its global economic outlook report.

"A breakdown of GDP by expenditure shows that the slowdown can be largely attributed to a downturn in fixed investments , which grew by only 0.4% in Q1 of 2011. Private sector investment activity not only appears to be affected by higher borrowing costs, but has also been affected by other factors like rising input costs, thin profits and rising bureaucratic red tape," the report notes.

Fitch joins a long list of other major agencies like the IMF and World Bank that have projected sub-8 per cent growth for the domestic economy this fiscal. The downgrade represents a major drop from 8.5 per cent last year.

The Fitch report also says the economic outlook will likely remain troubled by high inflation.

Wholesale price index-based inflation has remained high since early 2010, noted the Fitch report, and said, "Core inflation grew by average of 9.3% in the first five months of 2011, slightly below 9.6% averaged in 2010.''

''The economic outlook is likely to remain somewhat clouded by persistent inflationary pressures as the headline measure of WPI inflation has remained high since early 2010," says the report.

Food inflation plunged to a one-and-a-half month low of 7.78% for the week ended 18 June, down from 9.13% in the previous week.