The move may be attributed to the monetary tightening policy of the apex bank - Reserve Bank of India (RBI) - that has increased the interest rates 10 times since March 2010 thereby affecting both growth and demand. Through the report, Fitch ratings joins a list, that includes the World Bank and IMF, who have predicted a less-than 8% growth for the Indian economy for the current fiscal.
"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. Core inflation grew by average of 9.3% in the first five months of 2011, slightly below 9.6% averaged in 2010. "Although food inflation has eased from the high 20.9% in the first half of 2010, underlying inflation pressures remain intense.
According to the report, persistent inflationary pressures will keep the growth of the economy under check. The GDP grew by 7.8% year-on-year in the first quarter of 2011 as compared to 8.4% in Oct-Dec 2010. The Core inflation also grew by an average of 9.3% in the first five months of 2011, slightly less than the average 9.6% recorded in 2010. Higher interest rates and rising input costs combined with weaker profitability have affected the private sector investment thus compelling Fitch to revise its forecast for Indian GDP growth.