Indian economy likely to expand over 7 pct this year

The Indian economy is mainly driven by domestic sector, dominated by private consumption. India’s GDP grew 7.5 percent in the first half of 2016 from 7.2 percent growth recorded in the fourth quarter of 2015. But the solid headline figure masks the persistent weakness in exports and private investment.

For the whole of this year, the Indian economic growth is expected to hold more than 7 percent, especially given the good monsoon that should underpin the agriculture sector and domestic demand in general, said Commerzbank in a research note. The projections of Commerzbank for this year and next, are below consensus because of weak investment spending and the slow progress on major reforms so far.

But the optimistic surprise might come from rural spending on the good monsoon. The positive drivers of growth include continued growth in private consumption, RBI’s rate cuts of 150 basis points to 6.5 percent from end-2014 and a good monsoon in 2016 that should underpin rural spending and income, according to Commerzbank.

The Reserve Bank of India has taken in a cautious approach by lower rates to underpin growth given the slowdown in inflation. Moreover, Moody’s upgraded the outlook of the country in April 2015 from stable and affirmed the Baa3 rating. It has also underlined that there is a possibility of an upgrade if there is progress on institutional reforms, growth stabilizing policies and growth enhancing.