India’s economic growth is expected to moderate in the second half of this financial year after a strong first quarter, owing to tighter financial conditions, high oil prices and slowing global growth, says a UBS report. The global financial services major expects real GDP growth to slow to 7-7.3 per cent in the second half of this fiscal from 8.2 per cent in June 2018 quarter.
“We believe headwinds, including tighter financial conditions, high oil prices, slowing global growth and a still muted private corporate capex recovery on legacy issues of high debt and weakened balance sheets will weigh on India’s growth momentum,” UBS Securities India’s Economist Tanvee Gupta Jain and Strategist Rohit Arora said in a research note. According to official data, the Indian economy grew at a two-year high of 8.2 per cent in the April-June quarter of current fiscal on good show by manufacturing and farm sectors.
On the monetary policy front, the report said that the Monetary Policy Committee (MPC) of the Reserve Bank is expected to take a breather in the near-term amid rising global uncertainties like trade wars and oil prices. “In a scenario where trade wars drag global growth and push commodity prices lower, India might benefit as a disinflationary environment lowers external stability risks. Rates will likely be kept on hold in this case,” the report said.
However, “in an alternative scenario where India continues to be affected by the headwinds of rising oil prices, capital outflows, populist spending and political uncertainty leading to financial stability concerns, a 50 bps hike is likely for the rest of this fiscal,” it noted.