The country's economic growth is expected to continue with a "shallow recovery" next year, and is likely to inch up to 7.2 per cent in 2018-19 from an estimated 6.5 per cent in the current fiscal, says a report.
According to global brokerage Bank of America Merill Lynch (BofA-ML), economic recovery will continue to be driven by consumption, supported by a pre-poll step up in public spend rather than investment, given the persistence of surplus capacity and tight 3.2 per cent of GDP fiscal deficit target.
"We expect India to continue to see a shallow recovery in 2018. Growth will likely inch up to 7.2 per cent in 2018-19 (and 7.6 per cent in 2019-20) from 6.5 per cent in 2017-18," the report said.
"India's growth, at 5.5-6 per cent in old series, will likely continue to remain below the 7 per cent trend. This is in contrast to many economies, including the United States, which are above potential," it added.
Noting that consumption, not investment, would be the key driver for economic growth, BofA-ML said a possible La Nina and farm loan waivers (doubling to USD 40 billion by the summer 2019 polls) could support rural demand, while lower lending rates and a possible hike in the income tax exemption limit will "likely buttress urban demand".
Meanwhile, the global brokerage said it does not see a turn up in capex cycle for the next two years. "We do not see this in the foreseeable future. While we recognise that markets will price in the event ahead, we do not a case for a turn in the capex cycle in FY'20 either," BofA-ML said.
"It is because of excess capacity we do not see any turn around in investment. Public investment is also constrained by a strict 3.2 per cent of GDP center's fiscal deficit target in FY18-19," it added.
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