India's economic growth is set to bounce back to 7.1% next fiscal, from the estimated 6.5% in 2017-18, aided by robust consumption demand, rating agency Ind-Ra said on Thursday.
Ind-Ra, an affiliate of US-based Fitch, said it expects greater allocation of funds to farm and rural sectors in 2018- 19 Budget, which is unlikely to be a populist one despite the impending 2019 general election.
In its outlook for 2018-19, the agency projected average retail inflation at 4.6% and said inflation trajectory has reversed on rising commodity, especially crude oil prices.
"Days of RBI reducing rate are over. Now the question is when it will raise rates. However, they will wait for 6-8 months before raising policy rates to better gauge the inflation trajectory," India Ratings & Research (Ind-Ra) Principal Economist Sunil Kumar Sinha told reporters here.
The 7.1% gross domestic product (GDP) growth projected for 2018-19 is a tad lower than the forecast of 7.3% and 7.4% by the Asian Development Bank (ADB) and International Monetary Fund (IMF), respectively. The World Bank too has projected a 7.3% growth for India in 2018.
Ind-Ra said demonetisation and implementation of Goods and Services Tax (GST) have led to deceleration of growth to 7.1% in 2016-17 and further to 6.5% in 2017- 18.
"While the implementation of GST is likely to benefit the economy over the medium to long term, the same cannot be said about the impact of demonetisation," it said.
A gradual pick-up in growth momentum can be expected going forward as structural reforms like GST and Insolvency and Bankruptcy Code (IBC) take shape, Ind-Ra said.
The agency said it expects fiscal deficit in current financial year ending March to come in at 3.5%, overshooting the budget estimate of 3.2%.
"Despite 2018-19 being a pre-election year, Ind-Ra does not expect the Union Budget to be a populist budget. However, it expects some expenditure reallocation with an increased focus on the rural and agriculture sectors," it said.
The agency expects fiscal deficit in 2018-19 to be at 3.2%, higher than 3% stated in the medium-term fiscal policy statement.
Ind-Ra said while the Union Budget could see the Centre focusing on structural reforms to boost farm productivity, the states in their respective Budgets could give out doles in the run-up to the general election in 2019. A mix of global and domestic factors will keep the Indian rupee range bound at average Rs 66.06/USD in 2018-19, it said.
