Private demand to prop up growth to 7.5%: Moody’s

New Delhi: Indian economy will grow 7.5% in the current and next year riding on rising private consumption, Moody's Investors Service has said before pointing out that private investment needed to pick up to maintain momentum.

Moody's estimates Indian economy grew 7.3% in FY16. Initial estimates of India's statistics office pegged GDP growth at 7.6% in FY16. New estimates will be released at the end of this month.

"India, as a net importer of commodities, has benefited from falling prices and growth will be driven by rising consumption. However, a sustained improvement in domestic private investment would be required for the growth momentum to be sustained," Moody's said in its Global Macro Outlook 2016-17.

The ratings agency said India has benefited from lower commodity prices as it is a net importer of commodities and a low exposure to trade has also helped.

"Weak global growth has meant a 9% year-over-year decline in exports in real terms in 2015Q4, after declining by an average annual rate of 5.6% in the first three quarters of 2015," it said.

Investment spending fell in the last quarter of 2015, as did industrial production, and capital utilisation rates remain low, the ratings agency said in its analysis.

"Overall economic growth is supported by robust consumer spending, which makes up 55% of aggregate demand in the economy," Moody's said, adding that 7th Pay Commission award will support private spending along with a rise in rural incomes, provided the forecast of a good monsoon is realised.

Low interest rates could also provide some support to demand. "The prevailing low headline inflation is expected to remain so, given the current forecast of a good monsoon season, and should allow the Reserve Bank of India to sustain its current accommodative stance," it said.

Moody's said the the impact of weaker commodity prices is likely to fade over time with the stabilization of commodity prices. "Combined with the fact that external demand is likely to remain lacklustre, a sustained improvement in domestic private investment would be required for the growth momentum to be sustained," it suggested.

Moody's said weak growth in emerging markets, driven by low commodity prices and waning export demand, will continue to act as a drag on the global economy this year.

"The global recovery has weakened further and the outlook across countries remains uneven and largely weaker than in the previous two decades," said Elena Duggar, associate managing director at Moody's. "Global trade remains subdued, while spillovers from emerging markets shocks to financial markets globally have increased substantially."

China's economy is forecast to slow gradually from 6.9% in 2015 to around 6.3% in 2016.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.