India's GDP to Soar by 8.3% in Financial Year 2017: HSBC

The bank observed that the key drivers of the economic growth would be government\'s initiative of starting new investments.

Published: 22nd March 2015 10:39 AM  |   Last Updated: 22nd March 2015 12:22 PM   |  A+A-


NEW DELHI: Stars are "gradually aligning" for the Indian economy and it 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, y-o-y -- an improvement over the previous year and the trend is likely to continue in the coming months as well.

"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, "The stars are gradually aligning".

Key drivers of economic growth will be the government's push on kick-starting investments, continued reform momentum, re-starting of stalled investment projects and an accommodative monetary policy stance, Bhandari said.

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 RBI would cut rates by another 25 bps by June, but cautioned that the space for more aggressive rate cuts is "constrained" by the RBI'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 RBI surprised markets by reducing the benchmark interest rate by 0.25 per cent to 7.5 per cent on the back of softening inflation and the government's commitment to continue the fiscal consolidation programme.

This was the second time in two months that the RBI cut interest rates outside the regular policy reviews. Last time on January 15, it had cut the repo rate by 0.25 per cent to 7.75 per cent. The RBI is scheduled to announce its next bi-monthly policy statement on April 7.

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