Mumbai: The Indian economy is likely to grow at 7% in 2009-10 fiscal year, up from an earlier forecast of 6%, Nomura said in a note on Monday.
The investment bank said it has revised its growth outlook for India after government data earlier in the day showed an unexpected jump in farm and industrial output and expectations that the services sector will gradually catch up.
“We are revising up our GDP growth forecast for FY10... taking into account upside surprises in agriculture and industrial output and emerging signs of a recovery in the services sectors,” Sonal Varma, economist, said in the note.
India’s economy grew an annual 7.9% in the September quarter, much faster than expected on government stimulus spending and a surge in manufacturing, adding pressure on the central bank to lift interest rates as inflation rises.
“Today’s data strengthens the case for the Reserve Bank of India (RBI) to exit from its very easy policy settings,” Varma said.
She expects the RBI to begin the policy rate hiking cycle in January with a likely hike in cash reserve ratio this December.
The economy accelerated from its 5.8% rate in the December and March quarters to 6.1% in June on pick-ups in the mining, manufacturing, and electricity and services sectors from the previous quarter.
In the 2008-09 fiscal year, India’s economy grew 6.7%, its weakest in six years and well below rates of 9% or more in the previous three years.
The central bank forecast growth during 2009-10 would come in at 6% with an upward bias. The finance minister said last week growth could be 6-7% in 2009-10 and rebound to 8% next year.
Nomura said the immediate challenge is lower agricultural output, which would be a drag on the gross domestic product (GDP) in the October-December quarter when the summer crop is harvested and on lower rural consumption but urban demand would rebound on better job prospects.
Nomura had cut its growth forecast for 2009-10 fiscal year to 6% from 6.3% in early September due to a contraction in agricultural growth due to a deficient monsoon.