India is likely to remain an attractive destination for investors given its relative macro outperformance and the country is likely to clock a GDP growth rate of 7.5 per cent this fiscal, a Citigroup report said.
According to the global financial services major, the structural drivers of growth are likely to benefit from reforms but external headwinds remain strong.
“Overall a period of consolidation would see GDP growth at 7.7 per cent in FY17, only marginally higher than 7.5 per cent growth in FY16,” Citigroup said in a research note.
As per government estimates, the economy will grow by 7-7.5 per cent during financial year 2015-16.
On prices, the report said, the output gap is not closing fast enough to reverse the disinflationary momentum and hence Reserve Bank could continue with an accommodative stance.
The global brokerage firm expects CPI inflation to average 5.3 per cent in FY17 as against 4.9 per cent in FY16.
According to the report, the FY16 fiscal deficit for the central government could slip to 4.1 per cent of GDP on lower nominal GDP growth.
The implementation of the pay commission proposals would make fiscal compression “challenging”, Citigroup said adding “a fiscal deficit target of 3.7 per cent of GDP will be more pragmatic for FY17 than the 3.5 per cent target as projected in the fiscal roadmap last year.
Overall, 2016 could be a year of consolidating a cyclical recovery in a challenging global environment. Notwithstanding headwinds, India is likely to remain an attractive destination for investors given its relative macro outperformance, the report said.
The risks to watch for in 2016 are, protracted global slowdown, wave of competitive devaluation, super El NiÃ±o, stalled reforms and debt overhang, it added.
Meanwhile, Citigroup has cut its 2016 global growth forecast to 2.7 per cent from 2.8 per cent, with below-consensus forecasts in many major economies, implying another year of below-potential growth and continued disinflationary pressures.