Indian economy is expected to witness a cyclical recovery driven by investments as well as consumption, and the average GDP growth is expected to rise to 7.8 per cent in the first half of this year, says a report.
Indian economy is expected to witness a cyclical recovery driven by investments as well as consumption, and the average GDP growth is expected to rise to 7.8 per cent in the first half of this year, says a report. According to the Japanese financial services major Nomura, investment and consumption demand are the main drivers for India’s growth, amid worsening net exports.
“Our leading indicators suggest the cyclical recovery, which started in the second half of 2017, is set to continue through the first half of 2018,” Nomura said in a research note. Consistent with these data, “we expect average GDP growth to rise to 7.8 per cent year-on-year in the first half 2018 from 7.2 per cent in October-December 2017. The report, however, noted that rising oil prices, tighter financial conditions and a likely slowdown in investment activity ahead of the elections suggest growth will start to moderate in the second half of this year “towards our Q4 2018 forecast of 6.9 per cent”.
Meanwhile, the Reserve Bank expects India’s economic growth rate to strengthen to 7.4 per cent in the current fiscal, from 6.6 per cent in 2017-18, on account of revival in investment activity. On RBI’s monetary policy stance, the report said the rising oil prices are changing the macro dynamics and may put pressure on inflation. According to Nomura, for every USD 10/bbl rise in oil prices CPI inflation may rise by 30-40 bps and worsen the current account balance by 0.4 percentage points.
“Thus, if oil prices remain at these levels, then monetary policy is likely to move towards tightening versus our base case of no change,” the report said. The six-member MPC, headed by RBI Governor Urjit Patel, had left the benchmark repo rate unchanged for the third time in a row after deliberations on April 4-5, citing inflationary concerns. The minutes of the April MPC meeting released by the RBI noted that RBI Deputy Governor Viral Acharya favoured withdrawal of monetary accommodation in the next policy review meeting scheduled on June 4-5. Meanwhile, Executive Director Michael Debabrata Patra voted for an increase of 25 basis points in April itself, though the majority view of maintaining status quo prevailed.