Moody’s, Nomura, OECD all gung ho about India growth

Two global investor service agencies, Moody's Investor services and Nomura Securities, as also the club of wealthy nations OECD expect India to continue its robust growth in the coming financial year 2016-17 and the following fiscal, but want the government to undertake more structural reforms.

The forecasts come at a time when the Indian economy is faced with a challenging environment in global trade, but support the Indian government's assessment of a 7.6 per cent GDP growth in the current fiscal and an even higher growth rate in 2016-17.

Moody's Investor Services on Thursday forecast for India a ''stable GDP growth at around 7.5 per cent in 2016 and 2017,'' while Japanese financial services firm Nomura expected the country to clock a GDP growth of 7.8 per cent in the next fiscal.

According to Nomura, although India's industrial recovery process is likely to be gradual owing to external headwinds and weak private sector investment, the country is expected to clock a GDP growth of 7.8 per cent in the next fiscal.

''India is relatively less exposed to external factors, including a slowdown in China and global capital flows. Instead, the economic outlook will be primarily determined by domestic factors,'' Moody's said, adding that the large services export sector is another source of resilience. Similarly, the Paris-based OECD, in its Interim Economic Outlook, pegged India's growth rate at 7.4 per cent for fiscal year 2016 and marginally lower, at 7.3 per cent, for 2017.

''Growth in India is projected to remain robust, although floods have had a negative impact in the short term…,'' it said.

The forecasts come just ahead of Union Budget 2016-17, which will be presented on 29 February.

While Moody's and Nomura are optimistic in their growth forecasts, they are still subdued in comparison with the government's ambitious projection of a growth accelerating in the coming fiscal from 7.6 per cent in the current financial year.

The CSO also seems to contradict the finance ministry's mid-year economic review, which said higher growth in 2016-17 could be difficult.

The agencies, however, based their assessment on more structural reforms to support growth. The, OECD, too has highlighted that ''further progress is needed in implementing structural reforms to ensure that positive developments are sustained''.

In its report, Global Macro Outlook 2016-17, Moody's noted some constraints on GDP growth in India. ''First, business investment in general is hampered by banks' balance sheet repair and elevated corporate debt. Second, corporate pricing power has been limited by the impact on food price inflation and households' budgets of two consecutive droughts,'' it said.

There is, however, a silver lining in that India's economy is powered more by sustained growth in consumer spending, with a moderate inflation supporting supply growth and still favourable demographics, and a strengthening of investment flows.