Fitch says GDP can clip at 6.7% average for next 5 years

The country has the potential to grow at an average of 6.7% per annum over the next five years and will be the fastest growing large economies, global ratings agency Fitch has said.

Even though this rate of growth is lower than the potential and what policymakers have been aspiring for, it is ahead of the 5.5% growth estimated for China and Indonesia, who are joined at the second fastest rank.

Demographic factors, where India is among the youngest countries in the world with a maximum number of people in the working age group, and investment rates will be aiding the country, it said in a report on Thursday.

The country is set to witness a continued robust growth in the working-age population in the next five years, bolstering growth potential, it said, adding Indonesia, Mexico, Turkey and Brazil will also benefit from a similar trend.

The GDP recovered to 6.3% in the September quarter from a six-quarter-low of 5.7% in the preceding June quarter. The RBI has massively cut its estimates on growth for the full fiscal to 6.7%, but expects a bounce back in the remaining two quarters at 7% and 7.5%, respectively.

Elaborating on its slower growth estimate on China, the agency the significant slowdown from recent historical average growth is on a deteriorating demographic outlook and a slowdown in the rate of capital accumulation as the investment rate has declined.

The agency said India has an “impressive rate of capital accumulation per worker” which helps in maintaining the economic growth and also in upping the living standards. However, it said going by total factor productivity, which captures improvements in the efficiency of the production process, India has some catching-up to do.

“Total factor productivity performance has also been surprisingly weak given its low level of GDP per capita,” the report said.

It can be noted that Fitch’s rival Moody’s had surprised by revising upwards the sovereign ratings by a notch to Baa2, backing the reform processes undertaken by the government.