Fitch cuts India FY12 GDP target to 7.7% vs 8.30%

Moneycontrol Bureau

Call it a slowdown or a temporary blip in growth momentum! Inflation continues play a spoilsport in India's growth story.

In its latest report christened as Global Economic Outlook, Fitch Ratings has cut India's GDP growth target from 8.3% (earlier) to 7.7% in FY12. 

This is what they say:

"India's economic outlook is likely to remain somewhat clouded by persistent inflationary pressures. India's economy has clearly hit a soft patch, as GDP grew 7.8% yoy in the first quarter of 2011, down from 8.4% yoy in Q4 2010 and 8.9% yoy in Q3-2010. Private sector investment activity not only appears to be affected by higher borrowing rates but has also been affected by other factors like rising input costs (ie, oil), weaker profitability and increasing bureaucratic red tape. As a consequence, Fitch has revised down its forecast for India's GDP growth."

The rating agency believes that the Reserve Bank of India will continue to raise key policy rates to contain inflation in FY12. However, this does not suggest that we are going back to recession like situation.

So, what's the good news?
The Fitch report says:
"The global economic recovery remains on track, albeit at an uneven pace from quarter to quarter and from country to country. Emerging-market dynamism is still the main driver of the global recovery."

Fitch has revised down its growth forecasts for the BRIC economies (Brazil, Russia, India, and China) in 2011 from 7.1% to 6.9% and expects world growth to moderate to 3.1% in 2011 compared with 3.2% projected in the previous Global Economic Outlook and to rise to 3.4% in 2012 and 2013.