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14-May2018

Fitch expects India's economic growth to accelerate to 7.3% in FY19

Global rating agency Fitch has said that India's economic growth is likely to accelerate to 7.3 percent in FY19 and 7.5 percent in FY20 on the back of recovery in money supply to its pre-demonetisation level. Moreover, disruptions related to the rollout of GST have also eased and will support in the growth of Indian economy. The rating agency has said the country's ratings “balance a strong medium-term growth outlook and favourable external balances against a weak fiscal position and difficult business environment”. However, the business environment is likely to improve gradually on the back of implementation of the government's structural-reform agenda.

The Indian economy continued making recovery in the last quarter of 2017, growing 7.2 percent. The influence of one-off, policy-related factors, which had been a drag on growth, has now diminished. The money supply recovered to its pre-demonetisation level in mid-2017 and is now growing progressively alike to the previous trend.

The government plans to adopt a ceiling of 40 percent of GDP for central government debt, as recommended by the Fiscal Responsibility and Budget Management Review Committee in January 2017, compared with an estimated 50 percent of GDP for FY18. This would be a positive step towards a more prudent fiscal framework, even if debt is unlikely to fall below the ceiling by FY23, as recommended by the committee.

The Indian government's last full budget before general elections has left much of the task of addressing the country's relatively weak public finances to the next government. The budget deficit target for FY19 is set at 3.3 percent of GDP, down from an expected 3.5 percent in FY18, implying fiscal slippage of 0.3 percent of GDP in both FY18 and FY19 relative to last year's budget targets.


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