Indian economy grows despite poor indicators: Danske Report

India’s economic growth appears to be quite strong on the surface with a growth of 7.9 percent in first quarter. But there are certain reasons that suggest this is too good to be true. For five years, car sales have been quite flat after steadily rising in the earlier decade. Also, imports are declining and industrial output dropped 0.8 percent year-on-year in April. This does not indicate towards a booming economy. It is quite difficult to know where the true growth rate is, said Danske Bank in a research report.

But the OCED stated that the Indian economic growth is likely to be around 7.5 percent in the years to come, helped by a gradual rebound in investment growth and private consumption.

The country’s current account deficit has dropped noticeably to below 2 percent of the GDP, partially indicating better terms of trade due to major drop in price of commodity imports. India is not considered amongst the ‘fragile’ emerging markets as imbalances have been lowered noticeably in the past two years, according to Danske Bank.

Meanwhile, the RBI kept its rates on hold in early June after lowering in March by 25 basis points. The central bank is aiming to bring consumer price inflation within 4 percent, plus or minus 2 percent. At present, inflation in India is at 5.8 percent and is close to the target. The RBI is likely to lower rates in October by 25 basis points, added Danske bank. Recently, the RBI governor Raghuram Rajan announced that he will resign when his term ends in September. His resignation might create uncertainty regarding India’s policy that can depreciate the Indian rupee.