The Indian economy may be growing at a faster rate than most of the other large countries, but GDP growth is expected to slow gently from 7.6 per cent last year to 7.4 per cent in FY17 and further to 7.2 per cent in FY18, according to HSBC.

“Weaker global demand, banking sector risk aversion, sluggish domestic private investment, the rolling-off of the lower oil price bounty and statistical auto-correction in growth prints, are likely to be a drag,” HSBC said in a report on global economics.

Flagging concerns over the method of calculating GDP growth, HSBC said that though India’s official Q1 GDP growth was 7.9 per cent y-o-y, the data is fraught with methodological concerns, primarily pertaining to how the deflators are calculated. “Once we make some adjustments, we find actual growth to be 6-6.5 per cent, 150bps below the official estimate. Interestingly, some of the growth overestimation (around 80bps) could auto-correct over the next six quarters,” it said.

Looking ahead, (government wage hike-led) urban consumption demand, (normal monsoons-led) rural revival and (domestic liquidity-led) monetary transmission of previous policy rate cuts are likely to support growth. “We expect growth to gather pace over the medium term (2-5 year horizon) as the impact of reforms start to unfold. Already, three of four bills we expected have made it through (the unique identity Bill, the Bankruptcy Code and the MPC Bill); and the possibility of the Goods and Services Tax Bill being passed has risen. On the flip side, Raghuram Rajan’s departure raises risks,” it said

The fiscal deficit is likely to remain unchanged over the year, as higher deficits by States are likely to be offset by a disciplined Central government.

“Insufficient and delayed rains impacting rural incomes and food prices are the main downside risks to growth. Loss of momentum in banking sector reforms and political and economic contagion from Brexit are key downside risks,” it said.

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