Modi effect: Fitch revises economic growth forecast to 5.5% in 2015

Mumbai: International rating agency Fitch stated that India's economic growth will accelerate to 5.5 per cent this financial year and 6.5 per cent in FY16 due to the     clear mandate received by the pro-reform Narendra Modi government.   

"The clear electoral mandate of the BJP-led government  gives it the ability to pursue far-reaching economic reforms...we have increased our GDP growth forecast for FY16   to 6.5 per cent from 6 per cent and project real GDP growth to pick up to 5.5 per cent in FY15," it said.  The agency said announcements by Modi and Finance   Minister Arun Jaitley after government formation "signal a   strong intention to pursue reforms".  It said the budget will give more indications on the  government's policy intentions and implementation of the  measures will clarify the level to which growth can be   boosted.   

"Previous periods of high growth illustrate that potential for significantly higher growth rates certainly  exists, but that would imply higher savings rates - including through fiscal consolidation, productivity gains through  reforms, for instance related to governance, and product and  labour markets, and the elimination of infrastructure bottlenecks," Fitch said.   

The agency, along with rival Standard & Poor's, had said  it would downgrade the sovereign ratings to junk about two years ago on concerns over the widening fiscal deficit and low     growth. A lack of decision-making by the previous government   had also featured prominently in the commentaries.  While Fitch did not say anything about the possible     impact on the sovereign rating, it said the likely impact from     a below-par monsoon has been considered while arriving at the growth estimate of 5.5 per cent for FY15.    

The agency said there will be significant risks to growth  if the monsoon turns out to be much weaker than the Met's  projection of rainfall likely to be 93 per cent of the long-period average due to the high probability of an El-Nino  event in the Pacific Ocean.  A weak monsoon is likely to hit already-high food  inflation even as retail or consumer price inflation was at   8.3 per cent in May, it said.    

However, it hinted that food inflation will remain  contained on recent government announcements on reforms in  agriculture produce markets and food distribution fronts, as also the Reserve Bank of India's resolve to get CPI down to 6  per cent by January 2016.