NEW DELHI: The Indian economy will grow by 7.5 in fiscal year 2017 and 7.7% in 2018 and growth will gradually accelerate to around 8% over the next three to four years, global ratings agency Moody’s Investors Service said on Wednesday.
This translates into 7.2% growth in calendar year 2017 and 7.7% in 2018, it said.
The agency said that the The negative impact of last year’s demonetization on the economy has been limited in size and duration. “The ruling BJP’s victory in the Uttar Pradesh state elections indicates that the government has remained politically popular despite the demonetization exercise,” the agency said.
Moody’s said the government has been successful in pushing through several key reforms including liberalization of foreign direct investment rules in a number of key sectors, including defense, railway infrastructure, civil aviation and insurance; the Direct Benefit Transfer scheme for food; fertilizer and kerosene subsidies; the goods and service tax , which is expected to come into effect in July; and a national bankruptcy code.
“Together these will help reduce inefficiencies and improve trend growth over the long run,” Moody’s said in its latest report but cautioned that persistent banking sector weakness from a high proportion of delinquent loans on bank balance sheets will weigh on growth, if not resolved, by constraining credit for investment related activity.
It said that growth in China will continue to slow over the year due to reduced property-related investment as liquidity-tightening measures of the central bank, including limits on home mortgage lending, take effect. Accordingly, we expect that GDP will grow at 6.6% in 2017, in line with the government’s target of “at least 6.5% and higher if possible.”
The agency said it expects the inflation rate to rise to around 5% by the end of this year and the Reserve Bank of India will hold interest rates steady.
“The inflation rate has steadily declined to 3% as of April due to weaker food price inflation. We believe that the inflation rate will rise to around 5% by the end of this year once the effect of this temporary factor fades. Meanwhile, we expect the Reserve Bank of India to hold the policy “repo” rate steady, holding a neutral stance in this growth environment,” Moody’s said.
“More generally, private sector investment has remained weak despite progress on reforms, suggesting that some hurdles to investment remain binding in many cases,” it added.