India Ratings & Research, a Fitch Group company, has cut its growth forecast for India’s gross domestic product (GDP) for FY17 to 6.8 per cent, 110 basis points (bps) lower than its initial estimate of 7.9 per cent. For the next financial year 2017-18, the agency expects the country’s GDP to grow 60 bps higher at 7.4 per cent, backed by consumption demand and government spending.
The Central Statistics Office (CSO) in its advance estimate for 2016-17 had projected growth rate of 7.1 per cent, excluding the impact of demonetisation. India Ratings’ Principal Economist and Director-Public Finance Sunil Kumar Sinha said India’s decision to scrap high-denomination currency notes “significantly disrupted” economic activity.
Also, low private sector investment amid weak capacity utilisation by manufacturing sector is likely to be a concern for the Indian economy in the coming financial year. “It is unlikely that investment will revive… Reviving investment cycle with govt capex alone will not be of help,” Sinha said.
India Ratings expects Gross Fixed Capital Formation, a proxy for private investment, to be worse than the estimated (-) 0.2 per cent in 2016-17. “As the GFCF growth in April-September FY17 was negative 4.4 per cent, to attain even negative 0.2 per cent in FY17, GFCF will have to grow at 4.2 per cent in October-March FY17. This looks quite unlikely more so with the de-legalisation of currency still playing out,” the agency said.
While lauding the government’s demonetisation as an effort to weed out black money, India Ratings said that it will adversely affect the economy in the short run. “The disruption it has created is expected to pull down Private Final Consumption Expenditure growth to 6.5 per cent in FY17, even lower than FY16’s, when the country witnessed monsoon failure for a second consecutive year,” it said.