Global financial service firm Morgan Stanley predicted that India’s gross domestic product (GDP) growth for 2018 will surge to 7.5% from 6.4% in the current year. According to the company, India’s financial system has strengthened following measures such as bankruptcy reforms and tax reforms. The company is also expecting GDP growth of 7.7% for the year 2019.
The report by Morgan Stanley maintained that the country’s balance sheet fundamentals and corporate returns are increasing steadily over the last few months. Moreover, the strengthening financial system of the country is most likely to improve the investment credit demand. With the government’s capital infusion initiative, credit demand in the manufacturing is already improving according to many industry experts.
Following the note ban by the government last year, the country’s overall consumption demand declined and this caused a slowdown in the manufacturing sector. This was worsened by the implementation of the Goods and Services Tax (GST) in mid 2017. All these factors resulted in a weak first quarter with a three-year low GDP growth of 5.7%.
Despite the overall slowdown caused by these measures, many financial agencies and credit rating firms were positive that the slowdown is only temporary. This was evident in the second quarter (July to September) GDP growth rate of 6.3%. Morgan Stanley’s current outlook for this fiscal year stands at 6.4%.
While boosting economic growth is a major concern for the government, keeping the inflation under control is another significant task that cannot be overlooked. The RBI is currently focusing on keeping the inflation rate under control at least for the next few months. With the increase in food and fuel prices, there is a big chance that inflation is all set to increase in the first three month of 2018.
In its policy review, RBI did not lower any key interest rates mainly to keep the country’s inflation under check. As of now, the repo rate stays at 6%. The outlook by Morgan Stanley reiterates the belief that the country’s economic growth is on track as predicted by major financial organizations across the world.