India has "really surprised" in 2014 and it might do so again next year as the country's GDP figure is expected to pick-up from 5.6 per cent in the current fiscal to 7 per cent in 2016-17, a Citigroup report says.
According to the global financial services major, following two years of sub 5 per cent growth, India's GDP is expected to be around 5.6 per cent in 2014-15 and around 6.5 per cent in 2015-16.
"We believe India could make material strides in reforming the 'factors of production' in 2015 - land, labour, capital and enterprise. Faster than anticipated progress on these fronts could result in upsides to our FY16 GDP estimate of 6.5 per cent.
"Investment and consumption resulting in growth pick-up from 5.6 per cent in FY15 to 7 per cent in FY17," Citigroup said in a research note, adding that "reform momentum could accelerate the pace".
The Indian economy picked up momentum, driven by business friendly Narendra Modi government, progress on RBI's financial sector reforms and sharp drop in commodity prices.
All these factors have been "high on the radar of global investors with equity markets up 35 per cent so far this year and a stable currency in the Rs 59-63 range".
The global brokerage firm noted that in 2013, it was the CAD that was brought down from 4.7 per cent of GDP to 1.7 per cent; in 2014, it was inflation which fell from a peak of 11 per cent to 5.5 per cent, and in 2015 it is likely to show up in interest rates and growth.
"While one can debate on the timing, we reiterate our view that India is on its way back to 7 per cent growth and lower inflation," the report noted.
The GDP growth in the second quarter of this fiscal year slowed marginally to 5.3 per cent lower than the 5.7 per cent print in this first quarter.
"Despite the deceleration in second quarter GDP growth, we maintain our view of FY15 GDP at 5.6 per cent as the risks are fairly balanced" Citigroup said driven by pick-up in reforms momentum, sharp decline in inflation and continued de-bottlenecking of stalled investments.
According to Citigroup, there are three internal risk factors to the aforementioned projections -- NPA issues in the banking sector, jobless growth, and minority status in the Rajya Sabha. The three major external risk factors include, geo-political/price shocks, market turbulence and global trade protectionism.
