DBS: India's economy likely to grow by 6.6% in FY18

India's economy is likely to grow by 6.6% in current fiscal and a gradual recovery is underway as there are encouraging signs that the country's economic growth has bottomed out, Singapore's banking group DBS said in its economic report on Friday.

The bank said that it is optimistic that the Indian economy will achieve a growth rate of over 7% in fiscal 2019.

"This growth will be on stabilisation in post-Goods and Services Tax activity helped by more fine-tuning measures, trickle-down benefits from the bank-recapitalisation efforts, a higher fiscal deficit target and stronger investment growth," the report said.

But for FY18, DBS cited the government's advance projection of 6.5% growth. But the bank sees an improvement in investments at 4.5% in FY18 from 2.4% in FY17.

Net trade balance is expected to remain adverse with imports at 10% Year-on-Year (YoY) likely to outpace a 4.5% increase in exports, according to DBS.

While the real GDP numbers are not far from consensus, the Gross Value-Added (GVA) estimate is likely to be revised up modestly in subsequent readings.

"We expect GDP growth to average 6.6% and GVA 6.4% in FY18," said the bank.

It said that there are encouraging signs that India's economic growth has bottomed out and a gradual recovery is underway.

High-frequency data signal an improvement in the underlying trends, even if all engines are not firing away, it added.

Consumption is on track to improve, which, along with better external demand, could support manufacturing and services.

Investment growth has bottomed out, though recovery will be drawn-out due to legacy issues of high debt, which has translated into high bad loans with banks, the report said.

Supply-side forces are also on the mend, it added.

Industrial sector data until October was weak, though has since improved into November-December.

Purchasing Managers Indexes (PMIs), core industries indices, and industrial production have fared well in Q3 FY18.

The government has assumed weaker farm output this year, but a firmer-than-targeted Rabi output in the second half will push up annual production levels this year.

Base effects will, however, temper the YoY growth pace, according to DBS.