While the outlook for the global economy remains challenging, two international agencies expect that India will continue to witness robust growth in the next two years, but underlined the need for structural reforms.

Moody’s Investor Service on Thursday forecast “stable GDP growth at around 7.5 per cent in 2016 and 2017”.

“India is relatively less exposed to external factors, including a slowdown in China and global capital flows. Instead, the economic outlook will be primarily determined by domestic factors,” it said, adding that the large services export sector is another source of resilience. Similarly, the Paris-based OECD, in its Interim Economic Outlook, pegged India’s growth rate at 7.4 per cent for fiscal year 2016 and marginally lower, at 7.3 per cent, for 2017.

“Growth in India is projected to remain robust, although floods have had a negative impact in the short term…,” it said.

The forecasts come just ahead of Union Budget 2016-17, which will be presented on February 29.

While the two agencies are optimistic in their growth forecasts, they are still subdued in comparison with the government’s ambitious targets. The Central Statistics Office has projected a growth of 7.6 per cent in the current fiscal year and the government is eyeing higher growth next fiscal.

However, the Finance Ministry’s Mid-Year Economic Analysis has said higher growth in 2016-17 could be difficult.

Both agencies have also called for more structural reforms to support growth. In its report, Global Macro Outlook 2016-17, Moody’s noted some constraints on GDP growth in India. “First, business investment in general is hampered by banks’ balance sheet repair and elevated corporate debt. Second, corporate pricing power has been limited by the impact on food price inflation and households’ budgets of two consecutive droughts,” it said.

However, India’s economy is powered by sustained growth in consumer spending, fostered by moderate inflation and still favourable demographics, and strengthening investment, in particular, FDI.

The, OECD, too has highlighted that “further progress is needed in implementing structural reforms to ensure that positive developments are sustained”.

It also noted that structural reform momentum needs to be revived as policies to support demand alone cannot restore sustainable growth.

Global woes to continue Both the agencies also highlighted that global growth will continue to be subdued in the next two years.

“Downside risks to global growth have increased… as a further fall in oil prices, concerns about weaker growth in China and potential further currency weakness for some emerging markets have accompanied a rise in risk aversion and tightening of financial market conditions,” said Moody’s and pegged G-20 GDP growth at 2.6 per cent in 2016 and 2.9 per cent in 2017.

Terming strong global growth as “elusive”, the OECD pegged global economic growth at 3 per cent in 2016 and 3.3 per cent in 2017. “A stronger collective policy response is needed to strengthen demand,” it said, adding that monetary policy alone is not sufficient.

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