India’s GDP growth is expected to pick up again to 7.6 percent next year thanks to improving consumption, timely rains, higher public sector spending, and better export growth, says a DBS report.
According to the global financial services major, the ongoing reforms will strengthen the productivity part of growth and the country’s GDP will benefit from India’s favourable working age population growth.
“Real GDP growth hit a road-bump this fiscal year. Cyclical forces are expected to shore up next year’s pace to 7.6 percent,” DBS said in a research note.
The report said the benefits of structural reforms will, accrue more in the medium-term rather than in the short-term. Citing examples it said the Goods and Services Tax to be rolled out in July 2017 is a significant reform with long-term benefits despite the brief drag on growth after its launch.
“The timely implementation of other reforms will also be crucial in lifting the medium-term growth trajectory. This structural story will be strengthened by two domestic factors (demographic dividends and higher productivity), as well as a favourable external environment,” it said.
Moreover, India has one major advantage over G3 and many Asian economies – growth in its working age population is not peaking, DBS said adding a growing working age population is a necessary but insufficient condition for growth and this demographic dividend needs to be harnessed effectively.
“We see India’s ongoing cyclical upturn getting a hand from structural tailwinds. Provided the demographic dividend is harnessed effectively and productivity continues to improve on timely reforms, the structural story will be supportive of long-term growth prospects,” it said.