British financial services major Barclays has maintained its India growth forecast of 7.8 percent for 2015-16 based on expected rise in government spending, saying consumption trends are also expected to remain "generally supportive".
"Despite a softer-than-expected growth in the latest GDP print, we maintain our FY15-16 GDP growth forecast of 7.8 percent," Barclays said in a research note.
"The strong rise in central government spending should help GDP growth to accelerate in second quarter of fiscal year 2015-16," it said.
The Indian economy grew 7 percent in the first quarter of this fiscal, showing signs of slowing vis-a-vis the 7.5 percent expansion in the quarter before. But the growth was much higher than 6.7 percent registered in the first quarter of the last fiscal.
The quarter's GDP figures, unveiled on August 31, are calculated by the Central Statistical Office under a new methodology, unveiled earlier this year, which has been criticised for being quite contradictory when compared with other economic indicators such as the revenue growth of listed firms and bank credit growth.
Reserve Bank of India (RBI) Governor Raghuram Rajan and Chief Economic Adviser Arvind Subramanian have publicly expressed scepticism about growth numbers.
Barclays also said that India's fiscal situation is showing signs of improvement and is becoming more supportive to growth.
"The Indian economy is likely to benefit from tailwinds from both monetary and fiscal policy in the coming months," it said.
The centuries-old British banking institution said the green shoots of India's economic recovery and disinflationary tendencies is opening up space for greater monetary policy accommodation by the RBI.
"We believe the Reserve Bank of India will cut the repo rate 25 basis points (bps) in the second half of 2015, unless there are major negative surprises in the incoming macroeconomic data or significant stress develops in financial markets," it said.
"A sharp and prolonged period of disinflation and a moderation in inflation expectations could open room for a further 25-50 bps of repo rate cuts in first half of 2016, in our view," Barclays added.
The report said Barclays expected the RBI to cut rates at its next policy meeting on September 29.
Rajan has cut the repo rate, at which the central bank lends short-term to commercial banks, by a combined 75 basis points so far this year in three instalments and it currently stands at 7.25 percent.
