India’s economic growth to moderate despite strong start to FY19 on tighter financial conditions, limited fiscal headroom: DBS Bank

India’s economic growth is expected to moderate despite a solid start to FY2019, owing to dissipating base effects, tighter financial conditions and limited fiscal headroom have emerged as domestic speed-bumps, according to the latest report from DBS Group Research. It is hence, doubtful whether the country can sustain a growth trajectory above 8 percent for the rest of FY19.

Upcoming elections (states and general polls) also add to the uncertainties for the investment community. Due to an expedited banks’ deleveraging exercise, corporates are likely to focus on improving their capital structure instead of committing more for fresh capex projects.

Externally, higher oil prices and signs of a cyclical slowdown globally due to trade frictions, point towards a tougher environment. These are likely to offset any potential benefits from a weaker currency.

On the policy end, strong growth conditions provide room for the RBI to defend core inflationary pressures and market volatility through further policy tightening. Of late, the authorities have allowed the currency to find its level amidst the broader slide in regional currencies in favour of preserving their (reserves) bullets, the report added.

"We expect FY19 growth to moderate to 7.4 percent this year and We retain our expectations for a hike in the March 2019 quarter, with risks of being brought forward if global conditions worsen further," the report commented.