India's economic growth will accelerate to 7.3% in the current fiscal and 7.5% 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% in the fiscal year ending March 2019 (FY19), and 7.5% in FY20, from 6.5% 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%.
“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 GST 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% of GDP, down from an expected 3.5% in FY18, implying fiscal slippage of 0.3%of GDP in both FY18 and FY19 relative to last year's budget targets. “This would be a positive step towards a more prudent fiscal framework,even if debt is unlikely to fall below the ceiling by FY23” Fitch said.