Fitch has also cut growth forecasts for FY20 and FY21 to 7 percent from 7.3 percent and 7.1 percent from 7.3 percent, respectively.
Fitch Ratings cut India's FY19 GDP growth forecast to 7.2 percent from 7.8 percent on December 6. The rating agency has also cut growth forecasts for FY20 and FY21 to 7 percent from 7.3 percent and 7.1 percent from 7.3 percent, respectively.
The cut comes after India's GDP growth softened quite substantially in Q3 FY19, growing 7.1 percent year-on-year (YoY) after 8.2 percent in the previous quarter. Consumption was also at the weak spot, falling to 7 percent from 8.6 percent, though still growing at a healthy rate, Fitch said in its report.
On December 5, the Reserve Bank of India (RBI) had projected FY19 GDP growth at 7.4 percent (7.2-7.3 percent in H2) as in the October policy and at 7.5 percent for H1 FY20, with risks somewhat to the downside.
Moderation in private consumption and a large drag from net exports led to a slowdown in the gross domestic product (GDP) growth of the country, said Reserve Bank of India’s Monetary Policy Committee in its bi-monthly policy statement on December 5.
Fitch is also worried about higher financing costs and reduced credit availability. "The banking sector is still struggling with a high proportion of non-performing assets (NPAs), while non-banking financial institutions (NBFIs) are facing tighter access to liquidity following the IL&FS default," it said.
NFBIs have accounted for a large share of all lending in recent years and expanded credit rapidly. So far, RBI has dismissed calls by the government to provide emergency liquidity and ease lending restrictions on the maximum volume of lending that state-run banks can provide to NBFIs.
"Fiscal policy should continue to support growth in the run-up to elections in early 2019," Fitch said.
It added that the stepped-up public investment has helped stem the downward trend in the investment/GDP ratio, boosted by infrastructure spending and measures to support rural demand.
Owing to the widening of the current account deficit, Fitch said tighter global financing conditions may put downward pressure on the currency. It sees the rupee to weakening to 75 against the dollar by 2019-end.Fitch added that the external sector was again a significant drag on overall GDP, amid steadily accelerating imports.