India GDP will grow at 7.3% in FY19; here’s what Fitch says about demonetisation

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Updated: May 11, 2018 6:46 PM

India's economic growth will accelerate to 7.3 per cent in the current fiscal and 7.5 per cent in the next as money supply has recovered to its pre-demonetisation level and disruptions related to the rollout of GST have diminished.

Budget 2018: Arun Jaitley announced Union Budget 2018 on Feb 1India’s economic growth will accelerate to 7.3 per cent in the current fiscal and 7.5 per cent in the next. (Image: PTI)

India’s economic growth will accelerate to 7.3 per cent in the current fiscal and 7.5 per cent in the next as money supply has recovered to its pre-demonetisation level and disruptions related to the rollout of GST have diminished. Fitch, which last month kept India’s sovereign rating unchanged for the 12th year in a row, said the country’s ratings “balance a strong medium-term growth outlook and favourable external balances against a weak fiscal position and difficult business environment”.

But the business environment is likely to improve gradually with the implementation and continued broadening of the government’s structural-reform agenda. “Fitch expects growth to accelerate to 7.3 per cent in the fiscal year ending March 2019 (FY19), and 7.5 per cent in FY20, from 6.5 per cent in FY18,” it said in second quarter Sovereign Credit Overview for Asia Pacific region.

The Indian economy continued to bounce back in the final quarter of 2017, growing 7.2 per cent. “The influence of one-off, policy-related factors, which had been a drag on growth, has now waned. The money supply recovered to its pre-demonetisation level in mid-2017 and is now increasing steadily, similar to the previous trend.

Meanwhile, disruptions related to the rollout of the goods and services tax in July 2017 have gradually diminished,” it said. The BJP-led government’s last full budget before general elections has left much of the task of addressing the country’s relatively weak public finances to the next government.

The budget deficit target for FY19 is set at 3.3 per cent of GDP, down from an expected 3.5 per cent in FY18, implying fiscal slippage of 0.3 per cent of GDP in both FY18 and FY19 relative to last year’s budget targets.

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