India's growth cycle appears to be holding up: Nomura

Despite developed markets on a weaker footing, India’s growth cycle appears to be holding up and is likely to clock 7.6 per cent this fiscal, which may further improve to 7.8 per cent in the next financial year, a Nomura report says.

According to the Japanese financial services firm, even as there are signs of easing growth momentum in G7 economies (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States), the signal for India is one of firming growth momentum.

“Ongoing global jitters have raised concerns about India’s growth prospects as well. The OECD’s leading indicator, however, suggests that these fears are unfounded,” the Nomura report said.

This divergence in growth cycles between developed markets and India suggests that the latter’s recovery is primarily driven by domestic factors such as rising urban discretionary demand, higher public capex and improving corporate profits.

According to the Nomura analysis, although export volumes are muted, import remains robust, reflecting the divergence between domestic and external demand.

“In our base case, we expect rising real disposable incomes, a normal monsoon, pay and pension hikes due to the Seventh Pay Commission and off-balancesheet financing of public infrastructure projects to boost GDP growth to 7.8 per cent in FY17 versus 7.6 per cent in FY16,” the report said.

The report, however, noted that India is not immune to global developments, and a continued moderation in world demand could slow the pace of recovery.

“This is the key risk to our relatively sanguine view,” it said.