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Citi Research – a division of Citigroup Global Markets – has raised its India GDP growth forecast for 2015-16 to 6.5 per cent on expectations of an accelerated pick-up in investments.
NDA effectThe move comes close on the heels of Narendra Modi-led Bharatiya Janata Party’s stunning victory by gaining absolute majority (272 plus seats of a total of 543) in the 2014 general elections.
Citi had earlier projected economic growth for 2015-16 at 6.2 per cent. It has, however, retained the GDP growth forecast for 2014-15 at 5.6 per cent.
Lag effectWhile the new Government is likely to set the wheels in motion immediately, its effects on the economy will be lagged and a full-fledged recovery will be realised only in 2016-17, Rohini Malkani, Chief Economist, Citi India, said in a research note.
Citi is of the view that the governance and institutional reforms will start reflecting in the numbers with a lag. Also, high inflation and interest rates could impede growth in the short term, the research note added.
Lower CPI inflationCiti has maintained its view of the Consumer Price Index-(CPI) based inflation averaging 8 per cent in 2014-15, against 9.5 per cent in 2013-14. But it has lowered its 2015-16 inflation estimate to 6.5 per cent on the renewed political will of the Government.
As regards monetary policy, Citi has maintained its view of an extended pause on policy rates through 2014, as CPI inflation roughly meets the Reserve Bank’s target of 8 per cent by January 2015 and 6 per cent by January 2016.
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