India's economic growth to slowdown to 4.6% in FY20: Fitch

India's economic growth will roll back to 4.6 percent for the financial year ending in March 2020 (FY20) from 5.6 percent projected in November. During FY19, the economy had registered a growth of 6.8 percent.

The global rating agency Fitch came up with the forecast in its report published on Friday.

"We expect growth to gradually recover to 5.6 percent in FY21 and 6.5 percent in FY22 with support from easing monetary and fiscal policy and structural measures that may also support growth over the medium term," Fitch Ratings said. 

However, it has affirmed India's long-term foreign currency Issuer Default Rating (IDR) at 'BBB-' with a stable outlook.

India's rating balances a still strong medium-term growth outlook, compared with 'BBB' category peers, and relative external resilience stemming from solid foreign-reserve buffers against high public debt, a weak financial sector and some lagging structural factors, including governance indicators and GDP per capita, said the agency.

"Our outlook on India's GDP growth is still solid against that of peers, even though growth has decelerated significantly over the past few quarters, due mainly to domestic factors, in particular a squeeze in credit availability from non-banking financial companies (NBFC) and deterioration in business and consumer confidence," it said.

Fitch said Indian economy is less developed on a number of structural metrics than many of its peers. "Governance remains weak, as illustrated by a low score for the World Bank governance indicator (49th percentile versus the 'BBB' median of 59th percentile). India's ranking on the United Nations Human Development Index (32nd percentile versus the 'BBB' median of 67th percentile) also indicates relatively low basic human development. Average per capita GDP also remains low, at US $2,102, compared with the 'BBB' range median of US $12,152," reads the report.

Fitch expects the Reserve Bank of India (RBI) to cut its policy rate by another 65bp in 2020, after a cumulative 135bp easing since February 2019. The uptick in inflation to 5.5 percent year over year (yoy) in November appears to reflect a temporary spike in food inflation, while pressure on core inflation, which remained stable at 3.5 percent, seems limited in the current environment.

"The government is likely to remain focused on reforms during the second term of Prime Minister Modi. It has announced some structural measures over recent months to counter the growth slowdown, including efforts to reduce red tape and boost foreign direct investment. It also plans to consolidate the state-owned banks," said Fitch.

"The affirmation of the ratings incorporates our expectation of moderate fiscal slippage relative to the central government's deficit target of 3.3 percent of GDP in FY20. The government is again facing a trade-off between stimulating the economy and reducing the deficit in the medium term," the rating agency said.