Fitch Ratings, a global leader in credit ratings and research expects that India's economy will grow at the rate of 7.3% in the ongoing financial year and advance its stride to 7.5% next year as the brief burden incurred due to the implementation of Goods and Services Tax (GST) and demonetization will fade away.
The company reaffirmed India's 'BBB-' rating accompanied with a stable outlook as it pointed out India's growth ability and admired the monetary management tactics of the Reserve Bank of India. Fitch said that the GST is an important reform that will eventually support advancement in the medium term when the initial glitch disappears.
"India's five-year average real GDP growth of 7.1% is the highest in the Asia - Pacific (APAC) region and among 'BBB' range peers. Growth has the potential to remain high for a substantial period of time, as convergence with more developed economies can be expected," Fitch said in a statement from Hong Kong.
"India has the highest medium-term growth potential among the largest emerging markets." the rating agency added.
The rating agency foresees that the inflation in the country to close at around 4.9% in fiscal 2019 and RBI to start raising the policy repo rate from next year from the current 6%, once the growth improves further.
"The Reserve Bank of India is building a solid monetary policy record, as consumer price inflation has been well within the target range of 4% +/- 2% since the inception of the Monetary Policy Committee in October 2016," it said.
"India's rating balances a strong medium-term growth outlook and favorable external balances with weak fiscal finances and some lagging structural factors, including governance standards and a still-difficult, but improving, business environment," Fitch said, justifying its decision to hold the ratings.
"Weak fiscal balances, the Achilles' heel in India's credit profile, continue to constrain its ratings," Fitch said, pointing to fiscal failure against the budget targets.
"The government has reasserted its longer-term aim of gradual fiscal consolidation with an amendment of the FRBM Act (Fiscal Responsibility and Budget Management Act) to set a ceiling for central government debt at 40% of GDP and general government debt at 60% of GDP, to be reached by March 2025," it said of the new targets.
Fitch further added that "This is a positive step towards a more prudent fiscal framework if eventually adhered to."