INSUBCONTINENT EXCLUSIVE:
India surpassed France recently to become the world's sixth-largest economy.Bengaluru: India will remain the fastest-growing major economy
this year supported by increased government spending ahead of next year's general election, but rising oil prices pose the biggest downside
risk, a Reuters poll of economists showed
The over $2 trillion economy, which surpassed France recently to become the world's sixth-largest economy, is expected to grow 7.4 per cent
in the fiscal year ending in March 2019 and 7.6 per cent next, according to average forecasts in the latest poll of nearly 70 economists,
taken July 19-24.In contrast, analysts in the most recent Reuters poll expect China's economy, the world's second largest, to grow 6.6 per
cent this year.But record high costs of diesel and petrol - which are the biggest items on India's import bill - at a time when the rupee is
weakening and close to a record low has become a major burden, posing a risk to those forecasts.Over 60 per cent of 41 economists who
answered an additional question on risks to the outlook said the recent rise in oil prices was the biggest threat, as that would increase
the prospect for more interest rate hikes by the Reserve Bank of India."We think that for every 10 dollar rise in oil prices, India growth
declines by 30-40 basis points
This impacts growth by lowering consumption and raising input costs," said Shashank Mendiratta, economist at ANZ.India's economy has started
to recover after a slowdown caused by a ban on high-value currency notes in November 2016, followed by the hasty implementation of a goods
and services tax (GST) in July last year.Indeed, growth has been accelerating over the past year from a low of 5.6 per cent to above 7 per
cent in recent quarters.But, while the quarterly growth outlook for India is relatively steady through to the end of next year, it is not
expected to match or surpass the 7.7 per cent rate reported for the latest quarter."Relatively higher interest rates, high oil prices,
uncertainties on the exchange rate, gradually building up political risks from the 2019 elections - are all headwinds that can slow down the
growth momentum," noted Samiran Chakraborty, senior economist at Citi."Much will depend on the extent of (government) spending in fiscal
year 2019 and its multiplier effect on the rural economy."The consensus for growth has remained largely unchanged for almost a year in
Reuters polls, despite worries about escalating trade disputes, which has dented confidence among economists surveyed on most other major
economies.Indeed, the Reuters poll growth forecast for India this fiscal year is now a touch higher than the International Monetary Fund's
projection, at 7.3 per cent.Some respondents also said the trade dispute between the United States and its trading partners will have only a
minimal impact on the Indian economy, compared to others in the region."The big concern for many economies in Asia at the moment is the
growing protectionist threat from the US It is difficult to know how events will unfold, but the key point for India is that it doesn't look
particularly exposed to a more protectionist US," noted Shilan Shah, senior India economist at Capital Economics.TWO CONSECUTIVE HIKESThe
latest Reuters consensus was for India retail inflation to average 4.9 per cent in the year ending March 2019, up from 4.7 per cent
predicted just three months ago.While inflation has been above the RBI's medium-term target of 4 per cent for eight months and is expected
to stay that way through to the end of 2019, economists in the poll were almost evenly split over the next rate hike.Thirty-seven of 63
economists said the RBI will raise rates again in August and 22 respondents said the next rate hike would come by end-2018 or in the
January-March quarter next year.While one economist still expects a hike in the third quarter of next year, the remaining three respondents
do not expect any change until end-2019.That suggests, several economists have merely brought forward their expectations for tightening
compared to the poll taken ahead of the central bank's June meeting, when the median consensus was for a hike in the last quarter of this
year, followed up by an increase in early 2020."We had previously expected the start of the rate hike cycle in Q4 2018
However, reflecting this earlier than expected move (in June), we now expect the rate hikes to be front-loaded," noted Morgan Stanley.If the
RBI does raise rates next month, it would be the first time since October 2013 that the central bank has hiked borrowing costs at two
