India is in a goldilocks period of low inflation coupled with gradual recovery and the country is expected clock a GDP growth rate of 7.6 per cent this fiscal year, says a report.
According to Japanese financial services major Nomura, despite slowing external demand, the domestic growth cycle is improving.
As per official figures, India’s industrial output rose to nearly three-year high of 6.4 per cent in August on improvement in manufacturing and capital goods while retail inflation rose to 4.41 per cent in September.
These data “reinforce our view that India is in a goldilocks period of low and stable inflation juxtaposed with a gradual growth recovery,” Nomura said in a research note adding that while external headwinds have risen, domestic demand is still holding up well.
“We expect GDP (at market prices) growth to recover to 7.6 per cent YoY in FY16 from 7.3 per cent in FY15,” the report said.
The April-June quarter GDP slipped to 7 per cent from 7.5 per cent in the preceding quarter.
On inflation the report said that going by the daily retail food prices, there is an indication of an upside risk to food inflation in the coming months, due to the adverse impact of deficient monsoon.
“We continue to believe that further sustained disinflation is unlikely, as cyclical drivers of disinflation are now stabilising. We expect underlying inflation to remain around 5 per cent, although higher food prices will push YoY CPI inflation to above the underlying trend in coming months,” the report said.
According to the global brokerage firm, the Reserve Bank has already “front-loaded” rate cuts, and the central bank is likely to keep policy rate on hold until end-2016.
Reserve Bank Governor Raghuram Rajan on September 29 effected a more-than-expected interest rate cut of half a percent to boost the economy.