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Business News/ Politics / Policy/  India to emerge from ‘stagflation’ over next few quarters: Morgan Stanley
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India to emerge from ‘stagflation’ over next few quarters: Morgan Stanley

Morgan Stanley report says India's GDP is likely to accelerate to 6.8% over the next two years

As per the Morgan Stanley report, some of the near term challenges for the Indian economy in the next 12 months include El Nino and pace of recovery of exports. Photo: MintPremium
As per the Morgan Stanley report, some of the near term challenges for the Indian economy in the next 12 months include El Nino and pace of recovery of exports. Photo: Mint

New Delhi: The election results could be an “inflexion point" for India’s story and the country’s gross domestic product (GDP) is likely to accelerate to 6.8% over the next two years, a Morgan Stanley report says. Inflation, on the other hand, is expected to head towards 6%, it added.

“We now feel more confident that India will emerge from the stagflation type of environment over the next few quarters," Morgan Stanley said. “The GDP growth is to accelerate by 210 bps over the next 8 quarters to 6.8%. Inflation will finally head towards RBI’s comfort zone of 6% over the next two years," it said in a research note.

While India’s structural story has been very strong, the pace of reforms has been slow in the recent years holding back its growth.

Reforms that could follow post elections will improve the business sentiment, thereby lifting corporate sector profitability and incentivising a revival in private investment, experts believe.

“The election outcome has only increased our confidence in our forecast that India is on course to achieve an average real GDP growth of 6.75% over the next 10 years, taking its nominal GDP from $1.9 trillion to $5 trillion," Morgan Stanley said.

Risks to Morgan Stanley’s forecast is weaker than expected global growth and slower than anticipated pace of policy reform.

As per the report, some of the near term challenges for the Indian economy in the next 12 months include El Nino and pace of recovery of exports, while some of the medium term challenges for the economy are global environment and reform momentum.

On equity markets, the report said that given the mood of the market an “overshoot" is possible. Morgan Stanley’s Index target is 26,300 for June, 2015 compared to its previous target of 21,280.

In the recently concluded elections, the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) scored an overwhelming majority of 334 seats, in the 543-member Lok Sabha. PTI

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Published: 19 May 2014, 07:50 PM IST
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