Indian growth robust powered by domestic engine, says Nomura

MUMBAI: Rising disposable income, a normal monsoon, boost from the sixth pay commission and public infrastructure by the government will support India’s growth next fiscal even as the rest of the world faces concerns, Nomura economists Sonal Varma and Neha Saraf said in a note on Monday.

India’s growth is holding up due to a robust local economic environment even as the rest of the world is jittery, the economists said comparing India’s composite leading index to the seven richest countries of The Organisation for Economic Co-operation and Development ( OECD).

A composite leading index predicts the direction of the economy in the months to come.

Nomura said OECD’s indicator suggests that fears over India’s growth prospects are unfounded. “The signal for India is one of firming growth momentum,” Varma and Saraf said adding that India’s economic recovery is driven by domestic factors like rising urban discretionary demand, public capital expenditure and improving corporate profits, even though external weakness is weighing on exports.

"Indeed, our analysis shows that although export volumes are muted, import volumes remain robust, reflecting the divergence between domestic and external demand," they said.

Nomura expects India’s economic growth to improve to 7.8% in fiscal year ending March 2017 up from 7.6% in March 2016.

Nomura’s predictions come on a day when India’s manufacturing Purchasing Managers' Index (PMI) go back into expansionary territory with a reading of 51.1 in January, compared with 49.1 in December driven by consumer goods and higher new businesses.

Varma and Saraf however cautioned that India is not totally immune to global developments and a continued moderation in world demand could hurt the country and slow pace of recovery. "This is the key risk to our relatively sanguine view," they said.