India’s economy is recovering; to grow at 7.3% in 2018-19: Fitch

The Dollar Business Bureau

International credit rating agency Fitch on Thursday projected India’s economic growth rate at 7.3% in the next financial year of 2018-19 and at 7.5% in the 2019-20 fiscal, as the Indian economy is showing signs of recovery because the disruptions caused due to demonetisation and goods and services tax (GST) have gradually diminished.

However, India’s economic growth rate is estimated at 6.5% in the current fiscal, a little lower than the official estimates of 6.6% by the Central Statistics Office (CSO),” according the Fitch’s Global Economic Outlook report.

Indian economy grew at the rate of 7.1% in 2016-17.

“The pick-up in growth is likely as the influence of one-off policy-related factor which was dragging growth has now waned,” the US-based agency said.

The currency circulation in the country recovered to the level of pre-demonetisation in mid-2017 and it is now steadily increasing, similar to previous level. In addition, disruptions caused by the rollout of the GST in July last year have slowly diminished, it said.

India’s economy, now showing recovery signs, reached a five-quarter high of 7.2% in the October-December 2017 quarter on good growth in the major sectors such as agriculture, manufacturing and construction.

The rating agency said that India’s Union Budget 2018-19, starting from April, envisages a sluggish pace of fiscal consolidation and, as a result, should back the short-term growth outlook.

The Budget covers measures such as a minimum price support (MSP) and free health insurance that will benefit low-income groups and also boost rural demand. The Government is also planning to ramp up infrastructure expenditures, particularly by state-run enterprises, it said.

“Those policies come on top of substantial road construction plans and a bank recapitalisation plan announced late last year, which should also provide some support to growth in the medium term,” it added.

On inflation, the rating agency said that rising food prices were a major cause of increase in headline inflation. On the other hand, fuel prices have been controlled by the Government by rolling back excise duty in order to keep retail prices at pump stable due to rising global oil prices.

“We expect inflation to hover a bit below 5% in 2018 and 2019, in the upper band of the Reserve Bank of India’s (RBI) target,” it said.