Global rating agency Fitch on Tuesday forecast that India may grow at 7.4 per cent to 7.6 per cent over the next in the next two financial years, aided by the roll out of the Goods and Services Tax and higher investments.
“The GST, expected to be applicable from July of this year, will facilitate trade within India and reduce transaction costs,” it said in its latest Global Economic Outlook.
The economy grew by 7.1 per cent in 2016-17 and at a mere 6.1 per cent in the last quarter of the fiscal.
Attributing the slowdown to the demonetisation of high value currency in last November, Fitch said that the lagged effect is “quite puzzling”.
“The effects would be expected to be quite rapidly felt – but partly reflects the challenges of measuring spending in an economy with a large informal sector,” he said.
The report said that retail inflation should also tick up as the current low food price effect will fade, but it will remain firmly within the Reserve Bank of India’s target range.
It also warned that investment as a share of GDP has been trending down for several years and ongoing steep declines could spell risks for medium-to-long-term term growth potential.
On the global economy, Fitch said that the recovery in global growth is strengthening and is expected to pick up to 2.9 per cent this year and peak at 3.1 per cent in 2018.