Global credit rating agency Moody’s Investors Service and its Indian affiliate, ICRA, have said India will remain one of the fastest growing major economies globally in 2017, although GDP (gross domestic product) growth will moderate in the first half of the year, as the economy adjusts after demonetisation.
The statement from the global agency also added that the country will likely achieve its fiscal deficit target of 3.5% of GDP for the current fiscal year ending March 31. But in another one it said that the growth of the country’s GDP in 2017 would decrease from 7 percent in 2016, however it would still be about 6.6 percent and is likely to pick-up in the second half of 2017.
“Even after the currency in circulation is replenished, we expect that India’s economic growth will stabilise with a lag, while remaining strong,” said Aditi Nayar, an ICRA principal economist. “The adjustment and recovery period could stretch to as much as 2-3 quarters for certain sectors.”
The focus on digital transactions and the introduction of a goods and services tax (GST) will likely reduce the competitiveness of the unorganised sector, ICRA stated. The agency anticipates a relatively healthier expansion of the organised sectors in 2017, at the cost of the unorganised sectors.
Healthy reservoir levels on a seasonally adjusted basis will support the pace of expansion of agricultural output in the first half of 2017, it said. “But agricultural growth in subsequent quarters will be influenced by various factors, the most important being the magnitude and dispersion of monsoon rainfall,” ICRA said.
The loss of incomes in some sectors and deferral of consumption are likely to weigh on capacity utilisation, delaying the capacity expansion plans of the private sector, it said.
“Nevertheless, economic and institutional reforms already introduced and potentially forthcoming, continue to offer a reasonable expectation that India’s growth will outperform that of its similarly rated peers over the medium term, and that the country will achieve further improvements in its macroeconomic and institutional profile,” said William Foster, a Moody’s vice-president and senior credit officer.
After a temporary dampening effect on consumption and investment in the medium term, demonetisation will likely strengthen India’s institutional framework — by reducing tax avoidance and corruption — and should support efficiency gains through a greater formalisation of economic and financial activity, the agencies stated.
“India’s very large domestic markets provide a relative competitive advantage when compared to smaller and more trade-reliant economies,” Moody’s said.