Economy to grow at 8.3 per cent in FY17, says HSBC report

The Indian economy is expected to clock a growth rate of 7.4 per cent in the current 2014-15 financial year, which is likely to improve further to 8.3 per cent by 2016-17, says an HSBC report.

According to HSBC, GDP growth in the first three quarters of the FY15 (ending March 31, 2015) has averaged 7.4 per cent, y-o-y, showing an improvement over the previous year, and the trend is likely to continue in the coming months as well.

"We expect growth to improve from 7.4 per cent y-o-y in FY2015 to 7.8 per cent in FY2016 and 8.3 per cent in FY2017," the global financial services major's Chief India Economist Pranjul Bhandari said in a research note.

"The stars are gradually aligning. Key drivers of economic growth will be the government's push on kick-starting investments, continued reform momentum, re-starting of stalled investment projects and an accommodative monetary policy stance," Bhandari said.

On prices, HSBC said there would be continued disinflation, partly due to weaker commodity prices and the absence of demand-led price pressures.

"We expect inflation to slow further in the coming months before inching up towards the RBI's target of 6 per cent in January 2016," the report said.

According to the global brokerage, the country's current account will be in surplus for the quarter ending March 31, 2015 (after 32 consecutive quarters in deficit), and the deficit for the upcoming 2015-16 financial year will halve to 0.6 per cent of GDP from 1.1 per cent in FY15.

"However, the key risk to this view is a slackening in the reform process and the inability of the government to crowd in the private sector. If recovery and job creation are slow, the government could resort to fiscally irresponsible policies," HSBC said, adding that a rapid increase in commodity prices was a key risk and may destabilise the macro environment.

HSBC said the Reserve Bank of India would cut rates by another 25 basis points by June, but cautioned that the space for more aggressive rate cuts is constrained by the RBI's explicit mandate to bring the inflation rate to the mid-point of the 4 per cent, +/-2 per cent band by early 2018.

On March 4, the central bank surprised markets by reducing the repo rate by 25 basis points to 7.5 per cent on the back of softening inflation and the government's commitment to continue the fiscal consolidation programme.

This was the second time in two months that the RBI cut interest rates outside the regular monetary policy reviews.

Last time on January 15, the apex bank had cut the repo rate by 0.25 per cent to 7.75 per cent. The RBI is scheduled to announce its next bi-monthly monetary policy statement on April 7.