India is set to be Asia’s biggest turnaround story and the country’s GDP growth is expected to rise to over 6 per cent in FY 2015 and over 7 per cent in FY 2016, says a Nomura report.
According to the Japanese brokerage firm, 2014 would mark an inflection point and 2016 will be a watershed year as Indian economy will start outpacing China.
“We believe India is at an inflection point. Under Prime Minister Narendra Modi’s new reform-minded government, the medium-term outlook is much improved,” Nomura said in a research note.
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“We expect real GDP growth to rise from an average of 4.7 per cent in 2013-14 to 6.3 per cent in 2015, 7.1 per cent in 2016 and 7.7 per cent in 2017,” Nomura said.
The last three years have been challenging for the Indian economy, with real GDP growth sliding from an average of 8.4 per cent over the period 2003-10 to 5.3 per cent during 2011-13.
The RBI’s inflation fight is likely to go ‘hand-in-hand’ with the proactive business oriented Narendra Modi government’s strong mandate to cut red tape and jump-start supply-side reforms, it added.
“It is not an exaggeration to expect India to stand out as the biggest emerging market turnaround story in the next five years,” Nomura added.
A pro-active business oriented government can not only reverse the debilitating policy paralysis that has thwarted the ease of doing business, it can also help — by way of much needed supply side reforms — to debottleneck investment projects that are either underway or are in the pipeline. it said.
In the base case, reforms are expected to revitalise real investment growth to 10 per cent per annum, lifting potential output growth to around 7 per cent in the next five years and if reforms are fast tracked, real investment could hit 15 per cent per annum, raising potential growth to above 8 per cent, Nomura said.
Moreover, the Indian economy is starting to turn around as inflation is abating, the current account deficit is narrowing, forex reserves are accumulating and growth is just starting to rise.