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Stars are "gradually aligning" for the Indian economy and it is expected to clock a growth rate of 7.4% in the current financial year, which is likely to improve further to 8.3% by 2016-17, says an HSBC report.
According to the global financial services major, GDP growth in the first three quarters of the current fiscal year (ending March) has averaged 7.4%, y-o-y -- an improvement over the previous year and the trend is likely to continue in the coming months as well.
"We expect growth to improve from 7.4% y-o-y in FY2015 to 7.8% in FY2016 and 8.3% in FY2017," HSBC Chief India Economist Pranjul Bhandari said in a research note, "The stars are gradually aligning".
Key drivers of economic growth will be the government's push on kick-starting investments, continued reform momentum, re-starting of stalled investment projects and an accommodative monetary policy stance, Bhandari said.
On prices, HSBC said there would be continued disinflation, partly due to weaker commodity prices and the absence of demand-led price pressures.
"We expect inflation to slow further in the coming months before inching up towards the RBI's target of 6% in January 2016," the report said.
According to HSBC, India's current account will be in surplus for the quarter ending March 2015 (after 32 consecutive quarters in deficit), and the deficit for the upcoming fiscal year will halve to 0.6% of GDP from 1.1% in the current fiscal year.
However, the key risk to this view is a slackening in the reform process and the inability of the government to "crowd in" the private sector.
"If recovery and job creation are slow, the government could resort to fiscally irresponsible policies," HSBC said, adding that a rapid increase in commodity prices is a key risk and may "destabilise" the macro environment.
The global brokerage said the RBI would cut rates by another 25 bps by June, but cautioned that the space for more aggressive rate cuts is "constrained" by the RBI's explicit mandate to bring the inflation rate to the mid-point of the 4%, +/-2% band by early 2018.
On March 4, the RBI surprised markets by reducing the benchmark interest rate by 0.25% to 7.5% on the back of softening inflation and the government's commitment to continue the fiscal consolidation programme.
This was the second time in two months that the RBI cut interest rates outside the regular policy reviews. Last time on January 15, it had cut the repo rate by 0.25% to 7.75%.
The RBI is scheduled to announce its next bi-monthly policy statement on April 7.
