India’s GDP growth for the fourth quarter of 2015-16 is likely to be around 7.1 per cent, but slow private sector capex spending and stressed banking sector will weigh on the economy’s growth potential this year, says a DBS report.
According to the global financial services major, India continues to fare relatively well despite a challenging global backdrop, however, domestically certain pockets remained weak.
“1Q16 (January-March) GDP growth report out on Tuesday is likely to see gross-value added (GVA) growth at 7.1 per cent Y-o-Y (final quarter of fiscal year 15/16) steady from quarter before,” DBS said in a research note.
According to DBS, slow private sector capex spending and a stressed banking sector will weigh on the Indian economy’s growth potential this year.
“Much thereby hinges on the stimulatory impact from a normal monsoon and pay commission changes, which is expected to help the rural sector also bolster consumption demand and overall growth,” the report noted.
Services sector is expected to compensate for subpar industry growth and weak farm output amid subpar rains and warmer than usual heat.
Some of the service indicators like visitor arrivals, service sector PMIs were also positive, making up for the weak financial sector metrics, especially loan and deposit growth, the report said.
Meanwhile, recent macro indicators especially infrastructure industries growth, including steel and cement output have been positive, along with strong auto sales. These coupled with improved transmission of the easy monetary policy are likely to lower borrowing costs, it said.