Mumbai: As the stern anti-inflationary stance of Reserve Bank has started crimping growth and demand, global rating agency Fitch has further lowered forecast for domestic economy to 7.7 percent for 2011 from previous 8.3.
"The growth has clearly hit a soft patch, as GDP grew only 7.8 percent in the first quarter of 2011 (Q4 of FY11), down from 8.4 percent in Q4-10 and 8.9 percent in Q3-10," says Fitch Ratings in its global economic outlook.
"A breakdown of GDP by expenditure shows that slowdown can be largely attributed to a downturn in fixed investments, which grew by only 0.4 percent in Q1 of 2011. Private sector
investment activity not only appears to be affected by higher borrowing costs but has also been affected by other factors like rising input costs, thin profits and rising bureaucratic
red tape," the report notes.
Fitch joins other major agencies, IMF and World Bank, all of which have pegged sub-8 percent growth for the domestic economy this fiscal, in a major drop from 8.5 pc last year.
Fitch report says the economic outlook is likely to remain somewhat clouded by persistently high inflation.
The wholesale price index-based inflation has remained high since early 2010, notes Fitch report, and says, "Core inflation grew by average of 9.3 percent in the first five months of 2011, slightly below 9.6 percent averaged in 2010.
"Although food inflation has eased from the high 20.9 percent in the first half of 2010, underlying inflation pressures remain intense. The economic outlook is likely to remain somewhat clouded by persistent inflationary pressures as the headline measure of WPI inflation has remained high since early 2010," says the report.
After a month-long rally, food inflation plunged to a one-and-a-half month low of 7.78 percent for the week ended June 18, down from 9.13 percent in the previous week.
Fitch has also opined that RBI may need to raise policy rates further.