The Indian economy will grow at 7.5 per cent in 2016 and 2017 as it is relatively less exposed to external headwinds, like China slowdown, and will benefit from lower commodity prices, Moody’s Investors Service said on Thursday.
The firm, however, warned the generally robust economic environment is constrained by 'banks’ balance sheet repair and elevated corporate debt and corporate pricing power being limited by the impact on food price inflation and households budgets of two consecutive droughts.
In its report ‘Global Macro Outlook 2016-17 — Global growth faces rising risks at time of policy constraint’, Moody’s said growth will fail to pick up steam over the next two years as the slowdown in China, lower commodity prices and tighter financing in some countries weigh on the economy.
“Together with Turkey and China among the G20 emerging markets, India benefits from lower commodity prices: in 2014, net commodity imports amounted to 5.9% of India’s GDP, compared with net exports worth 1.3 per cent, 3.3 per cent and 4.3 per cent for South Africa, Brazil and Indonesia respectively,” it said.
Amid low growth in global trade in goods, India’s large services export sector (IT services account for around 18 per cent of total exports) provides another source of resilience.
“Moreover, India is relatively less exposed to external factors, including China slowdown and global capital flows. Instead, the economic outlook will be primarily determined by domestic factors,” it said.
The growth rate gap with other G20 emerging markets will be unusually large. “In the five years to the end of the decade, we expect GDP per capita (at market exchange rates) to increase by 34 per cent in real terms in India, compared with only 3.6 per cent in the G20 emerging markets excluding China and India,” the report said.