India's growth rate is expected to accelerate over the coming year and is likely to improve further to 7.6 per cent by 2019-20 as key sectors would revive from disruptions related to the implementation of GST and demonetisation, says an HSBC report.
According to the global financial services major, GDP growth in India is expected to accelerate to 7.0 per cent in 2018-19 from 6.5 per cent in this fiscal, shaking off the disruptions from demonetisation and introduction of the Goods and Services Tax (GST).
"India's growth story has a two-part narrative. The first is a slowdown and gradual recovery in the short run, likely over FY18 and FY19, as key sectors revive from disruptions related to the implementation of GST," HSBC said in a research note.
The subsequent narrative is of brighter growth prospects in the medium term (FY20 and beyond), when growth is expected to reap the benefits of recently undertaken structural reforms, it added.
HSBC expects India's growth at around 6.5 per cent in 2017-18, 7.0 per cent in 2018-19 and 7.6 in 2019-20, respectively.
The report further said the recovery in India's GDP growth will likely be relatively gradual, preventing price pressures from rebounding and allowing the Reserve Bank of India to keep rates on hold for the time being.
According to HSBC, once the impact of transient factors wanes, inflation will settle around RBI's 4 per cent target.
"We expect inflation to average 3.4 per cent over FY18 (ending the year in March at 4.3 per cent)," it said adding "accordingly, we forecast RBI will keep the repo rate on hold, as the rate-cutting cycle of the central bank looks set to have ended, with most inflation risks tilted to the upside".
The Reserve Bank in its fifth bi-monthly review of this fiscal kept repo rate unchanged at 6 per cent and reverse repo at 5.75 per cent while raising the inflation forecast for the remainder of 2017-18 to 4.3-4.7 per cent.