Notwithstanding the emphatic win for the BJP-led NDA coalition in Lok Sabha elections, India’s GDP growth is not expected to improve significantly this financial year as revival will be more “gradual than sharp”, experts said.
Hopes are running high that the Narandra Modi-led government would kick start a slew of reform measures and revive the economy to 8 per cent levels.
Global financial services majors, however, have retained their FY 2015 GDP estimates, saying challenges for the economy still persist and expect “gradual” upgrades only in FY 2016-FY 2017.
“We are optimistic, but believe the path will be more gradual than sharp,” Rohini Malkani, an economist at Citigroup India, wrote in a research report.
While the conclusive election outcome bodes well for consumer and business sentiment, a poor monsoon could offset this. “Factoring in sub-par agri growth, we retain our above consensus FY 2015 GDP estimate of 5.6 per cent,” Citigroup said, adding that “we expect upgrades only in FY16/FY17”.
A Deutsche Bank report said a potential poor monsoon could also impact growth to some extent this year. “We forecast 5.5 per cent real GDP growth for FY 2015, with potential of growth to be lower by 50 basis points if monsoon disappoints,” it said.
Growth would improve to 6 per cent in FY2016 on the back of improving investment and exports, the Deutsche Bank report added.
The pick-up in growth will be a function of firstly the pace of policy debottlenecking, secondly, investment appetite of the corporate sector and thirdly extent of the government’s own role in capital formation, the Citigroup report said.
The Deutsche Bank report further noted with pressure on twin deficits having receded considerably, it thinks India stands in a relatively better position than other comparable emerging economies to withstand the effect of probable US interest rate hikes in 2015.