“India’s economy is on a cyclical upswing. Forward looking indicators suggest domestic demand is gathering momentum,” said Faraz Syed, associate economist, Moody’s Analytics.
According to the ratings agency, low inflation rate has enabled the Reserve Bank of India (RBI) to cut interest rates by 50 basis points in early 2015 which has helped in easing pressure on the private sector.
“Lower rates as well as the government’s infrastructure and disinvestment programs should provide a boost to domestic-oriented industries,” said Syed.
The RBI had cut its repurchase rate by 25 basis points on January 15 and on March 4.
However, RBI Governor Raghuram Rajan, who conducted the first bi-monthly review of the monetary policy for the current fiscal year on April 7, decided to retain the policy rates.
The RBI made it clear that it will cut interest rates further only if it sees more robust containment of prices and commercial banks lowering the cost of housing, auto and corporate loans.
Rajan has projected a 7.8 percent growth for the current fiscal year, subject to a normal monsoon – over which the RBI was worried – as also an inflation rate of 5.8 percent by the end of the year, after easing to around 4 percent by August.
Syed further said that the rating agency’s analysis suggests that the country’s first quarter GDP (gross domestic product) growth will be around 7.3 percent on a year-on-year basis.
The growth projections come soon after Moody’s had revised India’s sovereign ratings outlook to positive from stable. Another ratings agency Fitch had reaffirmed its stable outlook on India.
The think-tank of rich nations, the Organisation for Economic Cooperation and Development (OECD), also endorsed high growth prospects for India.
Similarly, the Asian Development Bank (ADB) has also projected the country’s growth at 7.8 percent in 2015-16 and at 8.2 percent in 2016-17.
On April 14, the World Bank had forecast India’s growth accelerating to 8 percent in the next fiscal.