India’s GDP growth witnessed a trough in January-March quarter, but going forward the economy is expected to see gradual improvement in growth numbers primarily driven by consumption, says a Nomura report.
According to the Japanese financial services major, consumption has recovered from the demonetisation “shock” and while external demand has moderated slightly, it remains supportive of growth.
Moreover, there are signs of a pick-up in central government investment.
“We believe, GDP growth reached a nadir in March quarter (at 6.1 per cent) and will gradually improve to a still-modest 6.6 per cent in the second quarter,” Nomura said in a research note adding that growth is expected to be mainly consumption-led.
The report said some GST-related disruptions could spill into early part of the third quarter. But good monsoons, strong rural wage growth, pay hikes for state government employees, lower lending rates and a modest pick-up in external demand may push GDP growth to 7.1 per cent in September quarter and further to 7.7 per cent in the next quarter.
India lost the tag of the fastest growing economy to China in the March quarter with a GDP growth of 6.1 per cent, which pulled down the 2016-17 expansion to 7.1 per cent.
On the monetary policy front, Nomura’s policy signal index hints a rate cut.
“We now expect a 25 bps repo rate cut in the August monetary policy meeting (70 per cent probability) followed by a prolonged pause,” Nomura said.
Earlier this month, the RBI left the key repo rate unchanged at 6.25 per cent as it wanted to be more sure that inflation will stay subdued. The finance ministry’s stand is inflation has been consistently low warranting a rate reduction.