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Indian economic growth likely to reach 7 pct next year – Danske Bank

In the third quarter, the Indian economy grew 6.3 percent, accelerating from 5.7 percent in the second quarter. The demonetization in last November weighed on economic growth in the first half of this year as it led to a huge drop in the money supply growth. Investment growth had taken a hit, in particular. But the impact is now waning. The Indian economy has advanced from the solid global economy in 2017, which has supported exports. Import growth rebounded sharply in early 2017 but has come down a bit lately, noted Danske Bank.

“We expect growth to rise to 7 percent in 2018. Positive effects from the goods and service tax (GST) reform have been praised by the IMF as has some liberalisation in the Foreign Direct Investment framework”, stated Danske Bank.

India has achieved macroeconomic stability with inflation under control and a strong external balance about 1 percent of GDP down from 5 percent of GDP five years ago. The fiscal deficit is still quite high, though, at about 6 percent of GDP. But Moody’s upgraded Indian sovereign debt rating in November for the first time since 2004 on optimistic that Modi’s reforms would lower the risk of a sharp rise in debt. The rating was hiked to Baa2 from Baa3. A subdued spot in India is the banking sector with a high rate of non-performing loans and inadequate provisions, said Danske Bank.

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