Indian economy less exposed to external headwinds, to grow 7.5% in 2016 & 2017: Moody’s

Moody's Investors Service, in its latest report 'Global Macro Outlook 2016-17 - Global growth faces rising risks at time of policy constraint', while pointed that global 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, but has said that Indian economy will grow at 7.5 percent in 2016 and 2017 as it is relatively less exposed to external headwinds, like China slowdown, and will benefit from lower commodity prices.

It also said that with stable GDP growth at around 7.5 percent in 2016 and 2017, 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 percent in real terms in India, compared with only 3.6 percent in the G20 emerging markets excluding China and India. Elaborating further it said that 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 percent of India's GDP, compared with net exports worth 1.3 percent, 3.3 percent and 4.3 percent for South Africa, Brazil and Indonesia respectively.

Moody’s said that India's economy is powered by sustained growth in consumer spending, fostered by moderate inflation, still favourable demographics and strengthening investment, in particular foreign direct investment. It said that the 23.55 percent increase in public sector salaries proposed by the 7th Pay Commission is worth 0.7 percent of GDP and will contribute to strong consumption growth. However, the pay increase will also probably raise inflationary pressures, but the government will cut spending in other parts of the budget to maintain the deficit broadly in line with the 3.5 percent of GDP objective, thereby mitigating some of the inflationary effects.

The agency also, 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.