Moody's Investors Service and its Indian affiliate, ICRA Limited, say that India will remain one of the fastest growing major economies globally in 2017, although GDP growth will moderate in the first half of the year, as the economy adjusts after demonetisation
Moody's also believes that the government will likely achieve its fiscal deficit target of 3.5% of GDP for the current fiscal year ending March 31, 2017.
ICRA expects the country's growth of gross value added at basic prices to remain healthy in 2017, although such growth will ease somewhat to about 6.6% from around 7.0% in 2016, with a likely pick-up in H2 2017.
"Even after the currency in circulation is replenished, we expect that India's economic growth will stabilize with a lag, while remaining strong," says Aditi Nayar, an ICRA Principal Economist. "The adjustment and recovery period could stretch to as much as 2-3 quarters for certain sectors."
ICRA says that 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 therefore anticipates a relatively healthier expansion of the organised sectors in 2017, at the cost of the unorganised sectors.
ICRA also says that the loss of incomes in some sectors and deferral of consumption are likely to weigh on capacity utilization, delaying the capacity expansion plans of the private sector. And, the extent of capital spending budgeted by the central and state governments for the fiscal year ending 31 March 2018 will affect the extent to which infrastructure spending can stimulate growth in a non-inflationary manner.
"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," says William Foster, a Moody's Vice President and Senior Credit Officer.
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