India is in the initial stages of a business cycle recovery withGross Domestic Growth expected at 7.8 per cent in 2016 and 8 per cent in 2017, up from 7.3 per cent expectation for this year, Japanese financial group Nomura forecast on Friday.
“Under the new GDP series, we estimate India’s potential ground at around 8 per cent, which implies that the output gap will gradually narrow over the course of 2016, before closing fully by Q1 2017,” said Nomura in its Asian Economic Outlook presented to media in Singapore on Friday.
In our view, India is already in the initial stages of a business cycle recovery,” said Nomura, suggesting that growth would pick up in the next two quarters.
“The tailwinds from the low commodity prices, low inflation, the gradual transmission of 125 bps of cumulative rate cuts into lower bank lending rates, debottlenecking of stalled project clearances and government efforts to kick start public investment in infrastructure should all help to keep the recovery on track,” it said.
“We expect consumption demand to rise faster than capex in 2016. Higher real disposable incomes, lower borrowing costs and the income boost from the pay commission hike should boost urban consumer discretionary demand.”
A normal monsoon should also support rural consumption demand in the second half of 2016, said the Nomura report.