The increase in the rate of growth has been primarily as a result of the increase in manufacturing activity. "The reform initiatives taken by the government, which have recently been supported by the monetary easing stance of the RBI, should bring the investment momentum back to the economy," Assocham President Rana Kapoor said.
India is going to be key in lifting the growth rates in its region, Fitch Ratings has said.
The ratings agency, in a statement, on July 2, 2015 said, "Fitch expects that India's GDP growth rate this year will surpass China's for the first time since 1999, forecasting an acceleration to 8.1% in 2016 (FY17), before settling back at 8.0% in 2017 (FY18)."
However, the key reforms agenda unveiled by the Narendra Modiled government remains at the centrepiece of this investment pick up. Fitch said that the recent data shows that demand in India is strengthening.
India's factory output, or index of industrial production (IIP) grew by 4.1% in April signalling firm recovery.
The increase in the rate of growth has been primarily as a result of the increase in manufacturing activity. "The reform initiatives taken by the government, which have recently been supported by the monetary easing stance of the RBI, should bring the investment momentum back to the economy," Assocham President Rana Kapoor said.
Moreover, the Index of Eight Core Industries (which accounts for 38% of the IIP) grew by 4.4% in May as against the same month last year. The growth, albeit positive, has been uneven. For example, in the month of February, the core sector growth hit a 17month low of 1.4%, followed by negative of 0.1% growth in March, worst performance in 15 months, and then a negative 0.4% growth in April this year.
source: tradingeconomics.com
Fitch, too, is cautious in its approach, and has actually hinted that the acceleration of Indian economy might be slower than previously anticipated. Although maintaining high growth rate, the agency has lowered the country's growth forecast to 7.8% this year from 8% earlier. It also said that India's expected growth rate next year is likely to be 8.1%.
These projections, in line with what global multilateral agencies like the World Bank and International Monetary Fund (IMF) have predicted for India, are not in sync with policymakers in the country.
Arvind Panagariya, the vice chairman of the recently constituted Niti Aayog has defiantly said that India is likely to grow at 8% this year and will become a $3 trillion economy in less than five years.
Indian economy is currently just a tad over $2 trillion. What this effectively means is that India needs to grow at a compounded annual growth rate (CAGR) of over 8.5% to achieve this $3 trillion economy in the next five years.
However, Fitch says that the Indian economy may grow at 8.1% next year, with the number dropping slightly to 8% growth in the following year. Although, India will lead the regional economies in registering growth that will mask the weaker performance from its peers, including China. Fitch has said, "India will be key in lifting the aggregate regional growth rate, accounting for almost half of the forecast growth for the region excluding China."
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