India's GDP to grow at 7.1% in FY17 and 7.7% in FY17-18: Fitch
The formal sector also remained surprisingly robust.
Fitch Ratings on Tuesday said it expects Indian gross domestic product (GDP) to grow at 7.1% for the current fiscal before rising to 7.7% in both FY17-18 and FY18-19.
Experts and economists predicted that India's growth will slowdown to 6-6.5% in the current fiscal due to demonetisation.
However, in the latest GDP data, official statistics showed that the growth stood at 7% in the third quarter.
"This number looks somewhat surprising, as real activity data released since demonetisation pointed to weak consumption and services activity – because these transactions are cash-intensive," Fitch said.
As per the report, one of the reasons for the surprise data, could be the inability of official data to capture the negative effects of the demonetisation on the informal sector. However, the formal sector also remained surprisingly robust.
Fitch said, "There may still be some positive impact from the previous accommodative monetary policy stance, but the Reserve Bank of India signaled in its February meeting that its interest-rate easing cycle had come to end. We are now expecting the policy interest rate to stay at its current level of 6.25%".
As per the rating agency, the gradual implementation of the structural reform agenda is expected to contribute to higher growth, with higher real disposable income, supported by an almost 24% hike in civil servants’ wages at the state level.
At the same time, the government announced in the last budget the raising of the deficit target for FY18 to 3.2% of GDP, from 3.0%, which would support growth.
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