The Indian economy is expected to clock a 7.5 per cent GDP growth in this fiscal year, slightly lower than the previous estimate of 7.9 per cent largely because of bad weather and weak external demand, Morgan Stanley said in a report.
According to the global financial services firm, the continued weakness in external demand and slowdown in rural consumption spending with cuts in government’s redistribution policies are holding back the pace of recovery.
Moreover, the recent weakness in rainfall trends has raised concerns on agriculture output growth and may affect rural consumption, it added.
“In this context, we are revising our growth estimates slightly for F2016 to 7.5 per cent (from 7.9 per cent earlier) and for F2017 to 8.1 per cent (from 8.4 per cent earlier),” Chetan Ahya, Chief Economist for Morgan Stanley in Asia said in a research note. The revision in growth estimate was mainly because of poor weather affecting agriculture output and weak external environment.
According to Morgan Stanley, the GDP growth forecast is likely to accelerate from 7.3 per cent in 2014-15 to 7.5 per cent in F2016 and 8.1 per cent in F2017, “making India one of the few emerging market economies to achieve higher productive growth trajectory”.
“We expect this improvement in growth trajectory to be driven by pickup in capex, urban consumption and stabilisation of exports,” the report added.
The report noted “the pace of policy actions to revive productivity dynamic, strength of external demand recovery and trend in capital inflows into emerging markets are the factors that will influence the growth outlook”.
According to Morgan Stanley, inflation is likely to remain below 5 per cent year-on-year over the next two years and accordingly the central bank is likely to lower rates by a further 50-75 bps by March 2016.
RBI Governor Raghuram Rajan, who has been under pressure from the government and the industry to further cut rates, said this weekend that RBI remains in an “accommodative mode” and would take a decision as per the data on inflation and other macroeconomic factors.
RBI, which has lowered rates thrice so far this year by 25 basis points each, is scheduled to hold its next bi-monthly monetary policy review on September 29. However, two of the three rate cuts this year have been announced outside the scheduled reviews.
