The Indian economy will likely grow in the range of 6.5-7.5% over the next 12-18 months and the growth momentum will get support from the goods and services tax (GST) regime, according to the views held by a majority of respondents in a poll by Moody’s. However, it will take 3-4 years for India to return to the 8% growth trajectory, the poll said. However, according to Moody’s own assessment in May, India’s growth could accelerate to 7.5% in 2017-18 and 7.7% in 2018-19 as the government has been able to limit the negative impact of last year’s demonetisation on the economy. The GDP grew 7.1% in 2016-17.
Over three-fourths of respondents said exposure to large companies in power, steel and infrastructure sectors poses the greatest risk to banks’ asset quality in India. However, over 200 market participants, polled by Moody’s and its affiliate Icra, were confident of India’s stable economic growth prospects. “Given economic and institutional reforms in India and further changes that could follow, India will likely grow faster than similarly rated peers over the next 12-18 months despite a short-term drag caused by demonetisation,” Moody’s associate managing director Marie Diron said. While most respondents viewed that the GST will support faster growth in the next 12-18 months, they were divided on the precise estimate of a growth boost due to the indirect tax reform.
The poll found that asset quality risks linger for banks and credit growth will remain subdued. However, the poll respondents viewed that the formation of new non-performing loans (NPLs) will be slower than in the past 2-3 years, because of the banks’ recognition of a large amount of NPLs.