indian economy: Nomura projects India to be the fastest growing Asian economy in 2021 – The Economic Times

Clipped from: https://economictimes.indiatimes.com/news/economy/indicators/nomura-projects-india-to-be-the-fastest-growing-asian-economy-in-2021/articleshow/79640886.cmsSynopsis

The Japanese brokerage turned positive on India’s cyclical outlook, with near term risks of a resurgent pandemic unlikely to derail growth, according to the firm’s chief India economist, Sonal Varma.

Nomura projected India to be the fastest growing Asian economy in 2021, with an estimate of 9.9% gross domestic product (GDP) growth in the coming calendar year.

The Japanese brokerage turned positive on India’s cyclical outlook, with near term risks of a resurgent pandemic unlikely to derail growth, according to the firm’s chief India economist, Sonal Varma.

“We have a positive view on India’s cyclical outlook, we are penciling in a GDP growth rebound to 9.9% (in 2021) versus -7.1% in 2020. Near term, virus resurgence is a risk but we don’t think this would derail the cycle, which we believe is set to accelerate further,” Varma said during a conference call on Wednesday.

The firm believes India is on the cusp of a cyclical recovery as it projected GDP growth at 32.4% in the first quarter of the coming fiscal on the back of a low base followed by an easing to 10.2% in the next quarter, according to its Asia 2021 Outlook report released on Tuesday.

Three factors supported the positive outlook, which was last changed to negative at the end of 2018, according to Varma. “One, the lag effects of easy financial conditions. Second, the synchronised global recovery and third, the vaccine pivot point, which for India we think will come in the third quarter (July-September) of next year.”

“These factors in our view should lead to pent up activity and catch up in some of the lagging sectors like consumption and services as the year progresses,” Varma added.

Nomura defined the vaccine pivot point as the point at which vaccines start to become more widely available and show demonstrative success in suppressing the virus, allowing governments to lift most social distancing restrictions and citizens to become less fearful.

While the firm projected the vaccine pivot point to occur in the April-June quarter next year for advanced economies, it felt only 30% of India’s population would be vaccinated by the end of next year.
In terms of inflation, Nomura projected average retail inflation at 4.8%, with cost pressures pushing the figure above the Reserve Bank of India’s (RBI) 4% target for the second year.

“On inflation, we expect average CPI inflation at 4.8%, that’s down from 6.8% this year, essentially reflecting easing of the supply side markup we have seen on food because of the lockdown constraints,” Varma said.

On this account, the firm expected the RBI to keep policy rates on hold through the coming year along with a gradual exit from the accommodative policy stance starting from the April-June quarter.

“We expect the RBI to stay on hold through 2021 but the process of normalisation should begin, mainly via aggressive withdrawal of surplus liquidity, in the first half of 2021,” Varma said.

However, downside risks remained to its outlook including financial sector stress and constrained fiscal space, the report said.

“Some of the structural challenges for India remain such as the bank NPAs, constrained fiscal space. There’s also no visibility on the capex cycle, and the lack of job creation, all of which are a medium term concern,” Varma said.

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