The Indian economy is witnessing a “cyclical upswing” and the country is likely clock GDP growth of 7.5% this financial year, says a Deutsche Bank research report.
“Our current growth forecast for 2018-19 is 7.5% (RBI estimate is 7.4%), which will mark an improvement from the 6.7% likely out turn in 2017-18,” the global financial services major said.
The Reserve Bank expects India’s economic growth rate to strengthen to 7.4% in the current fiscal, from 6.6% in 2017-18, on account of revival in investment activity.
The report, however, noted that higher global oil prices, risk of an earlier than anticipated rate hike cycle from the RBI and the potential negative impact of the banking sector frauds on credit and overall growth are some of the factors that pose downside risk to its baseline GDP estimate.
Brent crude prices are currently hovering around $75 a barrel, which is up 12% from end-December 2017 levels.
According to the Deutsche Bank research report, a $10 increase in oil prices can shave off growth by about 10 bps while other factors pose about 15-20 bps additional downside risks.
Notwithstanding the fact that higher oil prices can potentially slow the pace of recovery, economic momentum will continue to improve “sequentially in 2018-19 and beyond”, the report noted.
“Capacity utilisation has started to improve, which should incentivise private sector capex recovery with a lag, GST collections have picked up thanks to the implementation of e-way bill, NPA resolution is underway and the government is likely to remain focused on pushing infrastructure investment, which should bode well for the growth outlook going forward,” the report added.
