India to register 7.4% growth in FY2015: HSBC

A Worker pastes stickers on bicycle parts at a factory at Ludhina in Indian state of Punjab, Feb. 1, 2014 [Xinhua]

A worker pastes stickers on bicycle parts at a factory at Ludhina in Indian state of Punjab, Feb. 1, 2014 [Xinhua]

Although the first annual budget from Indian Prime Minister Narendra Modi’s government failed to deliver big-bang reforms, India is expected to clock a growth rate of 7.4 per cent in the current financial year, which is likely to improve further to 8.3 per cent by 2016-17, says an HSBC report.

According to the global financial services major, GDP growth in the first three quarters of the current fiscal year (ending March) has averaged 7.4 per cent year on year.

“We expect growth to improve from 7.4 per cent y-o-y in FY2015 to 7.8 per cent in FY2016 and 8.3 per cent in FY2017,” HSBC Chief India Economist Pranjul Bhandari said in a research note.

Key drivers of economic growth will be continued reform momentum and an accommodative monetary policy stance, Bhandari said.

The Central Bank of India and the government agreed last month to overhaul monetary policy and set an inflation target of 4 per cent by March 2017.

On prices, HSBC said there would be continued disinflation, partly due to weaker commodity prices and the absence of demand-led price pressures.

“We expect inflation to slow further in the coming months before inching up towards the RBI’s target of 6 per cent in January 2016,” the report said.

According to HSBC, India’s current account will be in surplus for the quarter ending March 2015 (after 32 consecutive quarters in deficit), and the deficit for the upcoming fiscal year will halve to 0.6 per cent of GDP from 1.1 per cent in the current fiscal year.

However, the key risk to this view is a slackening in the reform process and the inability of the government to “crowd in” the private sector.

“If recovery and job creation are slow, the government could resort to fiscally irresponsible policies,” HSBC said, adding that a rapid increase in commodity prices is a key risk and may “destabilise” the macro environment.

The global brokerage said the Central Bank would cut rates by another 25 bps by June, but cautioned that the space for more aggressive rate cuts is “constrained” by the Bank’s explicit mandate to bring the inflation rate to the mid-point of the 4 per cent, +/-2 per cent band by early 2018.

On March 4, the Central Bank of India surprised markets by reducing the benchmark interest rate by 0.25 per cent to 7.5 per cent on the back of softening inflation.

The Central Bank is scheduled to announce its next bi-monthly policy statement on April 7.

 

Source: Agencies

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