Global ratings agency Fitch on Tuesday predicted that Indian economy will grow by 7.1 per cent in the current fiscal before stepping up to 7.7 per cent in the next two financial years.
The US-based agency, however, termed the 7 per cent GDP growth for the October-December quarter as "surprising", a tad lower than 7.4 per cent in the previous quarter.
"This number looks somewhat surprising, as real activity data released since demonetisation pointed to weak consumption and services activity because these transactions are cash-intensive. By contrast, official data suggest that private consumption was strong in the fourth quarter of 2016 (though services output growth moderated quite substantially)," Fitch said.
Fitch expects Indian GDP to grow by 7.1 per cent for 2016-17, before picking up to 7.7 per cent in both 2017-18 and 2018-19.
It said the December quarter GDP number suggests that economic activity was "hardly hit" by the cash crunch after the government's move to remove 86 per cent of currency in circulation overnight.
On this discrepancy, Fitch said it could be the inability of official data to capture the negative effects of the demonetisation on the informal sector.
However, 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.
Earlier, barely a week after the Central Statistical Organisation put out new GDP numbers, Reserve Bank of India Deputy Governor Viral V Acharya also said that the impact of demonetisation might be seen on some sectors of the economy in the fourth quarter of the current FY 2016-17.
Earlier on February 28, the CSO retained the growth projection for the current fiscal at 7.1 per cent and said: "The growth in GDP during the whole FY 2016-17 is estimated at 7.1 per cent as compared to the growth rate of 7.9 per cent in 2015-16."
The figures surprised many economists, who had expected the economy to take a bigger hit after government decided to scrap Rs 500 and Rs 1,000 banknotes, taking out 86 per cent of the currency in circulation virtually overnight.
Soon after CSO's new GDP projections, Congress spokesperson Anand Sharma had said the numbers are "misleading" as these do not factor in the adverse impact of demonetisation, including losses in jobs and production.
"The GDP numbers that have been released are surprising and highly suspect. The GDP growth as projected is questionable and will also undermine the credibility of Indian data globally," he had said.
However, in a press conference last week, defending the CSO, finance minister Arun Jaitley said that one should not question CSO's integrity on Q3. He said, "Opposition were misleading the country over demonetisation impact but now the situation has been changed". He added that the GDP figures made the Congress party depressed.