India’s gross domestic product (GDP) likely grew around 7.3% in the July-September quarter, up from 7% in the first quarter of FY16, but it remained below the country’s potential, Moody's Analytics said on Friday.
India’s gross domestic product (GDP) likely grew around 7.3% in the July-September quarter, up from 7% in the first quarter of FY16, but it remained below the country’s potential, Moody’s Analytics said on Friday.
Though India’s potential is around 9-10% GDP growth, it said closing the negative output gap is difficult as external headwinds are blowing stronger and the government has failed to deliver promised reforms.
“We believe GDP will grow at 7.6% this year and in 2016,” it said. Key economic reforms including in land acquisition, a national goods and service tax, and revamped labour laws, would help the country deliver higher GDP growth, it said. The World Bank on Thursday retained growth forecast for India at 7.5% for this year citing a pick up in investment due to higher capital expenditure by the Centre. India’s GDP grew by 7.3% in FY15.
However, Moody’s cautioned that getting the Rajya Sabha nod to some of the key reforms could get obstructed by an “obstructionist” opposition as recent controversial comments from ruling-Bharatiya Janata Party members won’t help the government’s cause. The ongoing state election in Bihar could prove pivotal to Modi’s leadership, it said. A win, would help the ruling party secure a majority in the Rajya Sabha.
Unlike in the Lok Sabha, the GST bill is held up in the Rajya Sabha as the government does not have a majority in the upper house.
On the other side, the Reserve Bank of India has helped kick-start the economic recovery by cutting the repo rate by 125 basis points this year. Banks have also started passing the rate cut benefits to consumers. Further rate cuts in 2015 are unlikely, Moody’s said.