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India’s GDP to grow at 7.5% in FY18: Moody’s

LiveMint logoLiveMint 31-05-2017 Asit Ranjan Mishra

New Delhi: Credit rating agency Moody’s Investors Service on Wednesday projected India’s economy to accelerate to grow at 7.5% in 2017-18 and 7.7% in 2018-19 as the government has been able to limit the negative impact of last year’s demonetisation on the economy.

India’s statistics department will revise its initial estimate of 7.1% growth in 2016-17 later on Wednesday.

“We expect marginally faster growth in India. Overall, we continue to believe that economic growth will gradually accelerate to around 8% over the next three to four years,” Moody’s said in its Global Macro Outlook.

The World Bank on Monday said it expects Indian economy to grow at 7.2% in FY18 and gradually gather pace to touch 7.7% by FY20, which is a year later than Moody’s projection.

Moody’s said the ruling Bharatiya Janata Party’s victory in the Uttar Pradesh state elections indicates that the government has remained politically popular despite the demonetisation exercise.

The rating agency 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 defence, railway infrastructure, civil aviation and insurance; the direct benefit transfer (DBT) 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,” it added.

However, it maintained that private sector investment has remained weak despite progress on reforms, suggesting that “some hurdles to investment remain binding in many cases.”

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, Moody’s said.

Though retail inflation has steadily declined to 3% as of April due to weaker food price inflation, Moody’s believe inflation rate will rise to around 5% by the end of this year once the effect of this temporary factor fades. It expects the Reserve Bank of India (RBI) to keep the policy rate steady, holding a neutral stance in this growth environment.

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