India’s real GDP growth likely to average 7¾ pct y/y in 2017–18 following 7.6 pct advance in 2016, says Scotiabank

India’s outlook is improving as the economy recovers from the temporary cash shortage that followed the government’s currency exchange initiative at the end of 2016. India’s real GDP growth to average 7¾ percent y/y in 2017–18 following a 7.6 percent advance in 2016. India will be a growth outperformer among the world’s major economies.

Momentum will be driven by domestic demand particularly household spending on the back of India’s rapidly expanding middle class and rising disposable incomes. The prospects for private-sector investment are improving following implementation of key reforms, yet further progress on improving the business environment is needed over the coming quarters, Scotiabank reported.

The Union Budget 2017–18 is growth-supportive while remaining committed to the improvement of public finances. Government spending will mostly be directed at infrastructure improvements and the rural economy. The administration’s goal of narrowing the central government deficit to 3 percent of GDP has been delayed by one year until FY2018–19.

The public deficit remains large at the general government level, averaging 6⅓ percent of GDP in 2017–18. The Indian administration aims to roll out a nationwide Goods and Services Tax (GST) in July this year. This important tax reform will transform the economy into a single market and improve India’s business environment. Due to a smaller oil import bill, India’s external position has improved markedly in recent years; the current account deficit shrank to 0.5 of GDP in 2016.

"We expect a modest reversal in 2017–18 with the shortfall hovering at 1 percent of GDP," the report commented.