Global rating agency Fitch said Indian economy will grow by 7.1 per cent for 2016-17 and the rate will increase to 7.7 per cent in the next two financial years.

On the 7 per cent GDP growth for the October-December quarter, the rating agency termed it “surprising” as it was only a tad lower than 7.4 per cent of the previous quarter. It said the figure suggested that economic activity was "hardly hit" by the cash crunch after the government’s decision to demonetize high value currencies.

Fitch opined that this discrepancy might be due to the inability of official data to capture the negative effects of the demonetisation on the informal sector. However it agreed that the formal sector remained surprisingly robust.

"This raises the possibility that these initial estimates of the growth impact of demonetisation could well be underestimated, with the possibility of revisions to official GDP data later on," it said.

"Gradual implementation of the structural reform agenda is expected to contribute to higher growth, as will higher real disposable income, supported by an almost 24 per cent hike in civil servants' wages at the state level," Fitch said.

The rating agency said it expects the policy interest rate to stay at its current level of 6.25 per cent. It further added that the economy would benefit from the earlier accommodative monetary policy stance of the Reserve Bank of India which has helped to bring down overall interest rate in the financial system.

The rating agency said that the Indian economy will benefit from the higher government spending. It indicated that the business environment will improve with implementation and continued broadening of the government’s structural reform agenda which will also support higher private investment.

Fitch projection of growth for this fiscal is similar to the estimates of CSO and global think-tank OECD.