July-September GDP confirms slowdown, need for reform: Fitch

India's third-quarter (July-Sept) GDP revealed on Friday demonstrates the slowdown in the country's performance (See: Indian economy grew 5.3 per cent in Q2-FY'13), while the recent reform proposals, while potentially growth-supportive, need time to work and face political risks to their implementation, says raqtings agency Fitch.

Fitch said in a statement, "We expect the economic recovery to be shallow. We forecast real GDP growth to fall to 6.0 per cent in FY13 (year to March 2013) from 6.5 per cent in FY12, before recovering to 7.0 per cent in FY14. This compares with an 8.4 per cent rise in FY11."

The Indian economy grew by 5.3 per cent in July-September versus a year earlier, down from 5.5 per cent in April-June. The fall in merchandise exports and merchandise non-oil imports in October also points to the economy's struggle to return to previous growth rates.

The upbeat HSBC manufacturing PMI of 53.7 for November suggests growth may have troughed. However, tight fiscal and monetary policy settings decrease the authorities' scope to support growth amid stubbornly high inflation and a commitment to consolidating public finances.

Evidence of slowing growth has been accumulating in 2012, and has been consistent with a cyclical slowdown. However, India also appears to be facing structural challenges to its investment climate.

"As we said in June when we revised our Outlook on its 'BBB-' rating to Negative, India's medium- to long-term growth potential could gradually fall if further structural reforms that would improve the operating environment for business and private investment are not speeded up," Fitch said.