Sustainable Growth Is Still At Least A Year Away, Says Nomura

Nomura says India will take at least one more year to completely recover from the disruptions of a cash purge and a new nationwide sales tax as Asia's third-largest economy needs to sustain farm and factory output.

The Indian economy picked up pace in the December ended quarter, with gross domestic product growth rising to 7.2 percent compared to a revised 6.5 percent growth int he previous quarter. This was faster than the 7 percent estimated by economists tracked by Bloomberg. Gross value added growth stood at 6.7 percent compared to 6.2 percent in the previous quarter.

This recovery will only last for a few quarters, Sonal Varma, chief Indian economist at Nomura, said in an interview with BloombergQuint. For a more sustained recovery, “we need to see new investment announcements pick up.” The brokerage has been

A nascent rebound in private investments continued in the quarter ended December. The gross fixed capital formation grew at a multi-quarter high of 12 percent year-on-year and government spending rose as well.

For a recovery-led by capital expenditure, capacity utilisation of India's factories and resolution of non performing assets in the banking sector are key. Only then will there be a need for new investments, Varma said.

It will take another year for capacity utilisation to reach 80-90 percent, initiating new investment, she said.

Also Read: Is India's Growth Bounce Big Enough?

Madan Sabnavis, chief economist at Care Ratings, agreed. While the “shadows of GST and demonetisation are behind us, it may be too soon to say the economy is accelerating”, he said in a interview.

Also Read: India's Economy Continues To Rebound