International ratings agency Fitch on Monday lowered the country's GDP growth projection for 2017-18 to 6.7 per cent.
According to Fitch's December Global Economic Outlook (GEO), the global ratings agency reduced the growth forecast for the fiscal year to end-March 2018 (FY18) to 6.7 per cent from 6.9 per cent.
"The Indian economy picked up in 3Q17, with GDP growing by 6.3 per cent yoy (year-on-year), up from 5.7 per cent in 2Q17. However, the rebound was weaker than we expected, and we have reduced our growth forecast for the fiscal year to end-March 2018 (FY18) to 6.7 per cent from 6.9 per cent in the September GEO," the ratings agency said in its report.
"The FY19 forecast has been cut to 7.3 per cent from 7.4 per cent. Growth has repeatedly disappointed in recent quarters, although this has partly reflected one-off factors including the demonetisation programme of November 2016 and disruptions related to the implementation of the introduction of the Goods and Services Tax in July 2017."
Fitch further said that it expects GDP growth to pick up in the next two years.
"Gradual implementation of the structural reform agenda is expected to contribute to higher growth, as will higher real disposable income," the GEO report said.
"Recent moves by the government should help support the growth outlook and enhance business confidence."
The ratings agency pointed out that the "two-year large bank recapitalisation plan" for state banks and the government's road construction plan should encourage investment growth outlook.
On key lending rates, Fitch observed: "Inflation is still running at low levels, weighed down by muted food price inflation. The INR has also appreciated quite sharply against the USD since the beginning of this year despite a narrowing interest rate differential between the US Fed policy rate and the Reserve Bank of India's (RBI)."
"These developments give headroom for the RBI to keep interest rates quite low in order to help lift the economy."