India’s economy may grow at 7.5% in 2018

SMEs are expected to ramp up production and exporters will benefit from the stronger global export up-cycle: Nomura

Global investment bank Nomura has predicted India's economy to register a 7.5 per cent growth rate in 2018, saying it is on the cusp of a cyclical recovery. India's Gross Domestic Product (GDP) growth bottomed-out in the secondquarter of 2017, at 5.7 per cent year-on-year, rising to 6.3 per cent in the thirdquarter. Nomura has forecast 6.7 per cent in the fourth-quarter and a fullyear growth of 6.2 per cent this year, rising to 7.5 per cent in 2018. "We remain bullish on India's macroeconomic outlook," Nomura said in its Asian Economic Outlook 2018. The Indian economy is on the cusp of a cyclical recovery and the government has continued to implement structural reforms and prudent macro policies, the tangible benefits of which may be harder to pinpoint right now, but over time will be positive for growth, it said in the report. Higher crude oil prices and state election results are the main risks, it said. Given the base effects, Nomura expects the growth in the first half of 2018 to be at 7.8 per cent, higher than the 7.1 per cent of the second half of 2017. "Further out, we expect a growth of 7.3 per cent in 2019 – a solid print, aided by manufacturing and private services on the supply side and investment and private consumption on the demand side," the report said. It listed out factors supporting a strong growth. It would be the normalisation of GST-related supply disruptions; the positive effects of bank recapitalisation, a positive remonetisation impulse and a positive fiscal impulse. The GST council was addressing the supply disruption concerns, it said. The council has raised the eligibility limit under the composition scheme, extended the dates for filing returns, disbursed pending refunds, allowed duty-free sourcing of materials for export until March 2018 and lowered GST rates.

As a result, Nomura said it expected SMEs to ramp up production, exporters to benefit from the stronger global export upcycle, import substitution to reverse and growth to jumpstart. "2018 should be 2017 in reverse," it pointed out. Additionally, Nomura estimates that Rs 700-750 billion of the recap package will be available as growth capital, which should enable banks to extend additional loans worth 7.3%-8.3% of outstanding credit (assuming a leverage ratio of 8-9x).