GDP data concerns stay, India to grow slower at 7.4%: HSBC report
HSBC says some of the factors weighing on the economy include weaker global demand, banking sector risk aversion and climbing oil prices
New Delhi: India’s economy may grow at a slightly slower pace of 7.4% this fiscal amid weaker global demand and risk aversion, says a report by global brokerage firm HSBC, flagging “methodological concerns" in computation of official gross domestic product (GDP) data.
According to HSBC, some of the factors that are weighing on the economy include weaker global demand, banking sector risk aversion, sluggish domestic private investment, gradually climbing oil prices and statistical auto-correction in growth prints.
“All considered, we expect GDP growth to slow gently from 7.6% last year to 7.4% in 2016-17 and further to 7.2% in 2017-18," HSBC said in a research note, adding that despite lower prints, this will be among the best growth performances globally.
India’s first quarter GDP growth print was 7.9% year-on-year, primarily led by urban consumption demand. According to HSBC, the GDP data are “fraught with methodological concerns" and once it made some adjustments, the actual growth was 6-6.5%—150 basis points (bps) below the official estimate. One basis point is one-hundredth of a percentage point.
It further noted that some of the growth overestimation—around 80 bps—could auto-correct over the next six quarters.
Meanwhile, the factors that are likely to support GDP numbers, going forward, include government wage hike-led urban consumption demand, normal monsoon-driven rural revival and monetary transmission of previous policy rate cuts powered by domestic liquidity.
“We expect growth to gather pace over the medium term (two-five year horizon) as the impact of reforms starts to unfold," HSBC said.
The risks to India’s medium-term growth outlook include insufficient and delayed rains impacting rural income, loss of momentum in ongoing banking sector reforms, and more severe-than-expected political and economic contagion from Britain’s referendum on European Union (EU) membership, HSBC said.
On the Reserve Bank of India’s (RBI) policy rate stance, HSBC said a final 25 bps repo rate cut in the October-December quarter of 2016 is likely if early showers are sufficient and bring down the recent increase in food prices.
In the June policy review meet, RBI governor Raghuram Rajan kept interest rates intact, citing rising inflationary pressure, but hinted at a reduction later this year if good monsoon helps ease inflation. The industry is still hopeful of further rate reduction from the central bank to boost investment.
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