However, it will gradually recover to around 7.7% in 2018 supported by higher consumption and public spending.
India's GDP growth is likely to decelerate to 6.7% in March quarter but it will gradually recover to around 7.7% in 2018 supported by higher consumption and public spending, says a report.
According to the Japanese financial services major Nomura, the country's GDP growth is expected to dip to 6.7% in the January- March quarter from 7% in the fourth quarter of 2016.
♦ HIGHLIGHTS ♦
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► GDP will average to 7.3% in H2 2017; GDP will gradually improve to 7.7% in 2018
► Higher consumption, 7th commission pay hikes, remonetisation, lower lending rates to boost demand, public spending
► Impact on factory output transitory
► RBI likely to stay on hold with rates through 2017, with a likely hike in 2018
"However, we expect GDP to average 7.3% in the second half of 2017 and 7.7% in 2018 supported by higher consumption (state pay hikes, remonetisation, lower lending rates) and public spending," Nomura said in a research note.
Regading the "soft" industrial activity in February, Nomura said demonetisation has severely hurt industrial activity. However, this impact is expected to be 'transitory'.
India's industrial output slipped to a 4-month low, contracting by 1.2% in February.
"In our view, the recovery in industrial production should gather momentum through 2017 supported by ongoing remonetisation, release of pent-up consumption demand, lower lending rates, higher public capex and impending pay hikes for state government employees," Nomura added.
On RBI's monetary policy stance, the report said given its view of a growth recovery along with a pick-up in inflation in the second half of this year, the RBI is likely to stay on hold throughout 2017 with risks skewed towards a hike in early 2018.
The Reserve Bank in its monetary policy review meet on April 6, kept the repurchase or repo rate -- at which it lends to banks -- unchanged at 6.25% but increased reverse repo rate to 6% from 5.75%.
The Marginal Standing Facility, on the other hand, has been revised downwards by 0.25% to 6.5%. MSF is RBI's overnight lending rate for banks against government securities.
(This article has not been edited by DNA's editorial team and is auto-generated from an agency feed.)
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