Global ratings agency, Fitch Ratings in its latest report has raised the forecast for India’s GDP growth in the current financial year 2016-17 to 7.1% from earlier 6.9%, after the government’s official data showed there was hardly any impact on the economy from demonetisation of high value currency notes. The projection of growth for this fiscal is in line with the estimates of CSO and global think-tank OECD. It also said that the economy will grow 7.7% in the next two financial years and estimated retail price inflation to rise to 4.6 per cent in 2017-18 and 5% in 2018-19, from 3.4% in the current year.
Though, the ratings agency expressed surprise at the official Indian statistician's latest projection of 7% GDP growth in the third quarter ended December, saying it contradicted data on real services activity hit by demonetisation. It further said that 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. By contrast, official data suggest that private consumption was strong in October-December (though services output growth moderated quite substantially). It also said that one reason for this discrepancy could be the inability of the official data to capture the negative effect of demonetisation on the informal sector.
Forecasting robust growth rates for India in the next two fiscal, Fitch said that gradual implementation of the structural reform agenda is expected to contribute to higher growth, as will higher real disposable income, supported by an almost 24 per cent hike in civil servants' wages at the state level. It said macroeconomic policy support to growth may gradually fade. It added that there may still be some positive impact from the previous accommodative monetary policy stance, but the Reserve Bank of India signalled in its February meeting that its interest rate easing cycle had come to an end.
