Fitch puts current GDP growth at 7.1%, for next 2 years at 7.7%

Global rating agency Fitch on Tuesday said the Indian economy will grow by 7.1 per cent in the current fiscal before stepping up to 7.7 per cent in the next two financial years.

The US-based agency, however, termed the 7 per cent GDP growth for the October-December quarter as "surprising", a tad lower than 7.4 per cent in the previous 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. By contrast, official data suggest that private consumption was strong in the fourth quarter of 2016 (though services output growth moderated quite substantially),’ Fitch said.

Fitch expects Indian GDP to grow by 7.1 per cent for 2016-17, before picking up to 7.7 per cent in both 2017-18 and 2018-19.

It said the December quarter GDP number suggests that economic activity was "hardly hit" by the cash crunch after the government's move to remove 86 per cent of currency in circulation overnight.

On this discrepancy, Fitch said it could be the inability of official data to capture the negative effects of the demonetisation on the informal sector.

However, the formal sector remained surprisingly robust.

"This raises the possibility that these initial estimates of the growth impact of demonetisation could well be underestimated, with the possibility of revisions to official GDP data later on," it said.

"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," Fitch said.

Fitch’s projection of growth for this fiscal is in line with the estimates of CSO and global think-tank OECD.

The rating agency said it expects the policy interest rate to stay at its current level of 6.25 per cent.