Good Monsoon, 7th Pay Commission, FDI reforms likely to boost GDP growth rate and it will be around 7.9% in 2016-17, predicts Goldman Sachs.
Indian economy is expected to clock 7.9% growth in the current fiscal driven by better monsoon, government pay hike, key reforms and FDI inflows, Goldman Sachs said on Thursday.
The global financial services major said the GDP is expected to improve gradually and for the April-June quarter it may slow a tad to 7.8%, in part due to unfavorable base. It had grown at 7.9% in the previous quarter. "For the fiscal year 2016-17, we forecast real GDP to grow by 7.9% year-on-year, higher than consensus expectations of 7.5% and up from 7.6% in FY16," Goldman Sachs said in a research note.
It further noted that a better monsoon, civil service wage hike following 7th Pay Commission, a favourable fiscal monetary policy mix, the recent passage of key reforms and continued FDI inflows should all support growth. It said key risks to India's growth trajectory include a faster pace of US Fed rate hikes than is currently priced in, concerns about Chinese growth and capital flows. Domestically, it cited aggravation of bad loans problem of state-owned banks or fiscal revenue slippage as potential risks. Moreover, corporate leverage may constrain activity in heavily levered sectors, it added.
Lauding the several important policy changes and reforms that have taken place over the past couple of months in the country like passage of the GST bill, government approval of the inflation targeting framework (along with the designation of a new RBI governor), Goldman Sachs said these initiatives paint a "positive" picture for the economic trajectory ahead. Positive monsoon developments for the first time in three years is also supportive of growth numbers.
"These developments have supported foreign capital inflows over the past quarter. Moreover, a stable INR amidst global risk-off events, including Brexit, has helped investor confidence," the report said.
The report said that besides, the big ticket reforms like the GST bill and the bankruptcy code, several 'nuts and bolts reforms have also been carried out in the year including measures to ease doing business, a pick-up in infrastructure investment, and easing in FDI restrictions in the defence, aviation, retail and e-commerce sectors, among others.
"We believe the government's focus on executing these reforms and building out rural infrastructure will have a gradual positive impact on India's economic growth trajectory," the report said.
The country's real GDP growth accelerated to 7.9% year-on-year in the first quarter of this year and recorded a five-year high growth rate of 7.6% for the 2015-16 fiscal on robust manufacturing growth.
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