India’s GDP growth is likely to revive to 7.9 per cent in the current financial year and then further up to 8.1 per cent in 2016-17, driven by structural reforms and cyclical easing of the monetary policy, says a Citigroup report.
According to the global financial services major, investment and consumption uptick are likely to result in a growth pick-up from 7.3 per cent in 2014-15.
“Going forward, given the ongoing trends of structural reforms, coupled with cyclical easing of the monetary policy by further 25 basis points in the current fiscal and range-bound commodity prices, India’s growth is likely to revive to 7.9 per cent in 2015-16 and towards 8.1 per cent in 2016-17,” Citigroup said in a research note.
The report, however, cautioned that the recent spell of unseasonal rains – impacting around 10 per cent of standing winter crops – and the forecast of a “deficient” monsoon pose challenges to the ongoing improvement in growth inflation dynamics.
The Met Department has predicted a deficient monsoon and revised downwards its forecast for this year to 88 per cent of the Long Period Average from the earlier 93 per cent. The North-West is expected to be hit the most. On structural reforms, Citigroup said: “We remain constructive on the structural reform agenda of the government. The less-contentious constitutional amendment Bill for GST is likely to be passed in the next monsoon session (mid-July),” the report said.
However, the passage of the land Bill may be a challenge in the near term, especially in light of a poor monsoon forecast and upcoming State elections in September-October, it added. According to the Citigroup, the government is currently focusing on institutional reforms, but the impact on growth will be felt over the medium term.
The group said India’s growth inflation dynamics has been improving steadily and there is “a fine set-up for a Goldilocks economy” – a term used to describe an economy that is not so hot that it causes inflation, and not so cold that it causes a recession.