Strong consumption and public investments have kept India’s growth recovery on track this year, and it is now crucial that the government’s reform process sustains to keep the momentum going, says a DBS report.
According to the report, the present recovery is not accompanied by current account and fiscal excesses or strong core inflationary impulses, unlike previous instances of high growth.
“Growth recovery is on track this year, primarily led by consumption and public investments. Domestic catalysts, by way of an increase in public sector wages and a strong monsoon, will also be timely,” DBS said in a research note.
DBS expects fiscal consolidation to be on track and likely meet this year’s target of 3.5 per cent of GDP, while the current account deficit is expected to widen slightly to 1.3 per cent of GDP this year from 1.1 per cent in FY16, still way below 4 per cent gap three years back.
Government’s efforts to keep the reform agenda “chugging” will also provide much-needed boost to the economy’s medium-term growth. The passage of the Constitutional amendments Bill, that will lead to the Goods and Services Tax next year, was a key development in this regard, it noted.
“With the ball set rolling on key reforms and land/labour reforms likely to be left to the state governments, focus will be on the implementation process. It is crucial that this momentum sustains as we head into a state-election heavy calendar next year,” the report noted.
The report further noted that supportive global liquidity and expectations of accommodative central banks have lifted emerging markets in recent weeks, and India is no exception. Besides high returns, investors are also likely to be attracted by the economy’s improving fundamentals, it added.
According to Organisation for Economic Co-operation and Development (OECD) composite lead indicator index, India’s gauge has been steadily rising in contrast to signs of moderation in the G7 economies and China.