Indian economy to expand above 7 pct this year

The Indian economy has expanded 7.5 percent year-on-year in the first quarter of this year from 7.2 percent in the fourth quarter of 2015. The economic growth is mainly driven by the domestic sector, dominated by private consumption. But the robust headline figure hides the persistent softness in private investment and exports.

The Indian economy, for the whole of 2016, is likely to grow above 7 percent particularly if a good monsoon gives additional support to the domestic demand and to the agriculture sector in general, said Commerzbank in a research report. There are downside risks to investment spending, while there is slow progress on major reforms. Hence the projections are below consensus expectations for 2016 and 2017, noted Commerzbank.

The positive drivers of India’s economic growth include a good monsoon in 2016 that should underpin rural and income spending, persistent growth in private consumption and the Reserve Bank of India’s rate cuts of 150 basis points to 6.50 percent from the end of 2014. The central bank has taken a pragmatic approach by lowering rates to underpin growth given the slowdown in inflation.

Moreover, Moody’s upgraded the outlook to positive in April 2015 from stable. It affirmed the Baa3 rating. It also underlined that an upgrade is likely if a progress is seen on growth enhancing, institutional reforms and growth stabilization policies, added Commerzbank.