UBS lowers India's FY18 GDP growth forecast to 6.6%

Growth forecast for FY19 revised to 7.4%, from 7.7%

Global brokerage firm UBS has lowered India's GDP growth forecast to 6.6 per cent for the current financial year from 7.2 per cent earlier.

The brokerage said that the growth is expected to pick up in coming quarters as the economy normalises post implementation of the GST.

Notwithstanding the downward revision in growth forecast, the global financial services major said the structural growth story of the country remains intact thanks to the ongoing reform push by policymakers and consumption demand.

"We are revising down our forecasts for India's GDP growth to 6.6 per cent year-on-year and 7.4 per cent year-on- year in 2017-18 and 2018-19, respectively (as against our earlier estimates of 7.2 per cent and 7.7 per cent)," said the report authored by Tanvee Gupta Jain, an economist with UBS.

According to official data, India's economic growth slipped to a three-year low of 5.7 per cent in April-June as disruptions caused by demonetisation spilled over to the third straight quarter amid a slowdown in manufacturing activities.

The report said reforms like implementation of GST, adoption of inflation targeting, a new bankruptcy code, liberalisation of FDI, measures to curb black money and encouraging digitisation would help in improving the productivity dynamics of the country and lay the foundation of a sustainable growth.

"We believe India needs continuous policy reforms to stay on a sustainable growth path. Any increase in populist spending in the run-up to the 2019 general elections would likely support consumption but delay the investment cycle recovery, thus lowering the potential growth outlook, in our view," Jain added.

She further said that though the implementation of GST has resulted in temporary disruption in economic growth momentum, it is a significant structural reform that could add 0.6-0.9 percentage point to India's GDP growth in the medium term.