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India's growth is expected to largely remain unchanged at 7.1 per cent in the coming year and will rise sharply to 7.7 per cent in 2018, says a report.
According to the Japanese brokerage firm, Nomura, though some of the reform initiatives taken by the government will hurt growth in the near term, they are laying the ground for a faster growth rebound in 2018.
"We expect growth to be largely unchanged at 7.1 per cent in 2017, but to rise sharply to 7.7 per cent in 2018," Nomura said in a research note.
Some of the reforms that might hurt growth in the near term but are positive for the economy in the medium to long run include -- the recent demonetisation and implementation of the goods and services tax (GST) - along with a reversal of the terms-of-trade gains.
"We remain positive on India's fundamentals as macro policies have remained prudent, avoiding the boom-bust cycles of the past, and the government has persevered with reforms that we believe are laying solid foundations for the future," Nomura Executive Director & India Economist Sonal Varma said.
Demonetisation will hurt growth in the short-term due to cash restrictions. Moreover, the unorganised sector depends largely on cash like agriculture, trade, real estate, renting & business services, hotels & restaurants, construction and transport & storage -- which together account for around 55 per cent of GDP.
"Given their weightings and the disruption to activity for roughly three to four months, we estimate GDP growth will be hit by 1.00-1.25 pp in Q4 2016 and Q1 2017," Nomura said.
According to the report demand is likely to be adversely impacted in the run up to the GST.
Bearing these factors in mind, we expect GDP growth to slow from 7.3 per cent in the third quarter to 6.0 per cent in the fourth quarter and stay weak at 6.9 per cent in the first quarter of 2017, the report said.
