US multinational Fitch Ratings on Friday raised India's GDP growth forecast for the current fiscal to 7.8 per cent, up from their earlier estimate of 7.4 per cent, indicating, however, that tightening of financial conditions, global oil prices and accumulated bad loans of banks continued as headwinds to the country's growth.
Releasing its latest Global Economic Outlook, Fitch also said that protectionist US trade policies are materially affecting a strong global growth outlook and that the US-China trade battle has prompted the American rating agency to downgrade its 2019 global GDP forecast.
"We have revised up our forecast for FY 2018-20 growth to 7.8 per cent from 7.4 per cent on the back of the better-than-expected 2Q18 outturn. India's growth likely peaked in 2Q18 (April-June) though," the Fitch report said.
"And despite the central bank's (RBI) greater tolerance for currency depreciation, interest rates have been raised by more than anticipated."
Fitch estimated retail inflation to rise up to the higher end of the Reserve Bank of India (RBI)'s target of 4 per cent with a band range of 2 per cent either way, owing to the relatively high demand-pull pressures and the steep depreciation of the rupee.
Inflationary risks along with broadly negative global cues depressed the Indian rupee to a new low of 72.91 against the US dollar on Tuesday.
"This robust performance was partly attributable to a powerful base effect, with GDP growth dampened in 2Q17 (April-June) by companies de-stocking ahead of the rollout of the goods and services tax," Fitch said.
"Fiscal policy should remain quite supportive of growth in the run-up to elections likely to be held in early 2019. The investment/ GDP ratio has stopped trending down, helped by ramped-up public infrastructure outlays, in particular by state-owned enterprises," it said.
Fitch also lowered India's GDP growth forecasts for the fiscals 2019-20 and 2020-21 by 0.2 percentage points to 7.3 per cent.