Mumbai: The Indian economy will grow at 7.9 per cent this fiscal year and 8.4 per cent in FY17, on the back of policy reforms, a spurt in domestic demand and lower inflation, according to Morgan Stanley.
"The government's determined efforts to implement policy actions to improve the growth mix, i.e. reviving productive investment and cutting back less effective redistributive policies, are helping the economy move towards the path of faster growth and lower inflation," the foreign brokerage said in a note on Monday.
Under the new growth computation methodology, the GDP expansion at market prices will go up to 7.9 per cent in FY16 and accelerate further to 8.4 per cent in FY17, it said.
Stating that the risk to the growth forecasts are "evenly balanced", it said the pace of policy actions to revive productivity dynamic, strength of external demand recovery and trend in capital inflows into emerging markets are the key factors to monitor.
The country switched to a newer system of GDP growth computation, which made it the fastest growing major economy in the world. Analysts still take the numbers with caution due to absence of back data.
Morgan Stanley said that under the older series of growth, its FY16 growth estimate remains unchanged at 6.5 per cent.
The Narendra Modi government has initiated a slew of reforms like opening up the defence sector for private and foreign investments, increasing foreign ownership caps in insurance etc. to step up the growth.
Inflation has also been trending below 5.5 per cent, well within the RBI's targets. The government and the Reserve Bank of India (RBI) have also agreed on an inflation targeting framework, which will make the monetary policy more predictable.
The note said growth will start picking up from the April quarter and the external demand to improve in the second half of the year onwards.
On inflation, it said that the retail price will come below 5 per cent, which will create more room for the RBI for rate cuts to push growth.
The government is expecting a GDP growth of 8-8.5 per cent and clock double-digit level in the subsequent years.
"Growth in 2015-16 is expected to be between 8-8.5 per cent. Aiming for a double digit rate seems feasible very soon," Finance Minister Arun Jaitley had said while presenting the Budget for 2015-16.
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