Indian economy is likely to witness a slow recovery largely due delay in two factors – global revival and lending rate cuts at the domestic front, says a Bank of America Merrill lynch report.
According to the global financial services major, notwithstanding a far more politically stronger government, recovery in the Indian economy would be driven by global turnaround.
“We continue to caution investors about a slow recovery due to twin delays in global recovery as well as lending rate cuts at home,” BofA-ML said in a research note.
The recovery in Indian economy is likely to be driven by a pick-up in consumption in the next 12 months, it added.
The global brokerage firm said that the coming months could see a consumption recovery largely driven by four factors – softer lending rates, public sector salary hikes after the 7th Pay Commission, household savings on lower oil prices and a possible hike in wheat MSP before the early-2017 Punjab/UP polls.
The report noted that lending rate cuts rather than reforms will drive cyclical recovery as reforms typically take 5-10 years to push up growth structurally.
Meanwhile, BofA-ML has also trimmed its growth forecast for India to 5.5 per cent from 6 per cent for the current fiscal, as per the old GDP series.
According to the old series, the base year for calculation of national accounts was 2004-05.
The Central Statistics Office (CSO) has now adopted the new series of National Accounts with 2011-12 as base year and subsequently revised the Gross Domestic Product (GDP) growth rate to 6.9 per cent in 2013-14 from 4.7 per cent and 5.1 per cent in 2012-13 from 4.5 per cent.
The April-June quarter GDP slipped to 7 per cent from 7.5 per cent in the preceding quarter.