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Indian economy will pick up steam in the fiscal year beginning in April, but not by as much as analysts thought just a few months ago due to disappointment over a delayed revival in investment, a Reuters poll found.
Tumbling oil prices and easier credit conditions are likely to boost consumption, but implementing reforms will also be key to sustaining that momentum.
According to ING Vysya economist Upasana Bharadwaj, the outlook for the economy is still good, but the delay in strong investments in India means that forecasts for next year have been pegged back slightly.
The poll of 19 analysts forecast Asia's third largest economy to grow 6.2% next fiscal year, a slight downgrade from the October survey's forecast of 6.4%, but it would still be the first time that growth has exceeded 6.0% since FY 2011-2012.
The poll also showed that the economy will grow 5.5% the current fiscal year ending in March, unchanged from the previous poll result.
India suffered its slowest phase of economic growth for a quarter century during the previous two years when it clocked consecutive growth rates of sub-5%. The economy is still growing far too slowly to generate enough jobs for the increasing number of people entering the labour force.
Hopes of some acceleration in the growth rate stemmed partly from last week's surprise interest rate cut by the Reserve Bank of India and a clear signal it would ease policy through 2015 if inflation continued to cool and the government kept its finances healthy.
Median forecasts showed the economy expanding 5.8% this quarter and 6.0% next.
"A looser policy should help growth accelerate over the next 18 months or so. On top of this, there is the boon from the drop in oil prices and what that means for spending," said Shilan Shah, India economist at Capital Economics.
A spectacular fall in global crude oil prices, roughly 60% in the last six months, has sent inflation tumbling, reduced India's import bill, will make it easier for the government to cut costly fuel subsidies, and has freed up more disposable income for India's middle classes to spend on other goods and services.
The latest poll saw consumer prices rising 6.5% this fiscal year and 6.0% in the following year, sharply down from the 7.5% and 7.0% forecasts in October's poll.
RBI Governor Rajan said last week more policy easing would take place if data continued to confirm disinflationary pressures and economists took that as a sign that further easing is certain.
All economists surveyed predicted a cut in the repo rate, currently 7.75%, before July while 9 of 20 forecast a cut as early as policy review meeting on Feb.3.
But India requires reforms, and while many have been promised by the government few have been implemented.
Prime Minister Narendra Modi's government has sought to push reforms on foreign investment and manufacturing, but is facing rigid labour markets, poor infrastructure and political obstruction, despite holding a strong majority in the lower house of parliament.
Next year's budget will be unveiled on Feb. 28 and should give an indication of what reforms can be expected.
"We are on the slightly more cautious side in terms of hopes of reform and we've seen the political roadblocks come into play over the past month or so and it's going to constrain the reform agenda," said Shah.
