Projecting an economic growth rate of close to 7.5% in 2016 and 2017 in India, Moody's Investors Service on Thursday said the prevailing low headline inflation is expected to continue aided by a good monsoon, allowing RBI to sustain its current accommodative stance.
However, Moody's in a report said India has a strong GDP growth, but private investment remains weak. Modest exposure to trade in goods and a net-commodity importing status has to some extent shielded the economy from external headwinds.
However, weak global growth has meant a 9% annual decline in exports in real terms in fourth quarter of 2015 after declining by an average 5.6% in the first three quarters of 2015, Indian news agency (PTI) reported. "Moreover, investment spending fell in the last quarter of 2015, as did industrial production and capital utilisation rates remain low," it said.
India's overall economic growth, it said, is supported by robust consumer spending, which makes up 55% of aggregate demand in the economy. "Prevailing low headline inflation is expected to remain so, given the current forecast of a good monsoon season, and should allow the Reserve Bank of India to sustain its current accommodative stance," Moody's said, adding it expects Indian economy to continue to grow close to an annual rate of 7.5% in real terms in 2016 and 2017, largely driven by private consumption growth.
Private spending will be supported by the implementation of the public sector salary increases, mandated by the 7th Pay Commission, and a rise in rural incomes, provided the forecast of a good monsoon is realised. "Looking forward the impact of weaker commodity prices is likely to fade over time with the stabilization of commodity prices.
"Combined with the fact that external demand is likely to remain lackluster, a sustained improvement in domestic private investment would be required for the growth momentum to be sustained," it added.