India’s industrial recovery process is likely to be gradual owing to external headwinds and weak private sector investment, still the country is expected to clock a GDP growth of 7.8 per cent in the next fiscal, says a report by Nomura.
According to the Japanese financial services firm, the industrial production data suggests that growth momentum, including investment demand, slowed at end-2015, while industrial recovery is expected to be gradual due to external headwinds and weak private sector investment.
“Still, we expect GDP growth to rise to 7.8 per cent in 2016-17 from 7.6 per cent in 2015-16, led by low commodity prices, improving discretionary demand and a consumption boost from the Seventh Pay Commission,” Nomura said.
According to the global brokerage firm, the factors that are likely to aid growth momentum include low commodity prices, improving discretionary demand, a consumption boost from the Seventh Pay Commission, pass-through of past rate cuts and the lagged impact of higher public capex in 2015.
Moreover, normal monsoons in 2016 should also support the rural demand, it added.
According to official figures, industrial production declined for the second month in a row, registering negative growth of 1.3 per cent in December, mainly due to drop in manufacturing and capital goods sector.
During April-December period this fiscal, the industrial output grew 3.1 per cent compared to 2.6 per cent a year ago.
“The IP data suggest that growth momentum slowed at end-2015, likely weighed down by one-off factors (Chennai floods) and rising global uncertainty. In our view, because of rising external headwinds and weak private sector investment, the industrial recovery is likely to be gradual,” the report noted.
On RBI’s monetary policy stance, the report said that it is likely to deliver a 25 bps repo rate cut in April and stay on hold thereafter.
“We expect the RBI to deliver a 25 bps repo rate cut to 6.50 per cent in April. Beyond that, we expect the RBI to stay on hold as we do not expect inflation to undershoot the RBI’s 5 per cent target for March 2017 and we see upside risks to its medium-term inflation target of 4 per cent,” Nomura added.