Country is likely to clock a GDP growth rate of 7.4 percent this fiscal and key legislations, like Aadhaar bill, bankruptcy code and Monetary Policy Committee are likely to support medium-term outlook, an HSBC report says.
The global financial services major expects growth to remain flat as banking sector stress is likely to pull growth lower while normal rains could revive rural demand, offsetting the slowdown.
"We expect GDP growth to flat-line at 7.4 percent in fiscal 2016-17," HSBC said in a research note adding hopes of a medium-term revival have improved.
As per advanced estimates by the government released in February, India's GDP is estimated to have grown at 7.6 percent in fiscal 2016.
"Our medium term growth outlook is brighter on the back of reforms. Three of the four legislations we highlighted at the start of the year, the unique identity Aadhar bill, the Bankruptcy code, and the Monetary Policy Committee have passed through Parliament. These are likely to support medium term growth," HSBC said.
It further said the passage of Goods and Services Tax Bill later in the year is likely amid the anticipated increase in the presence of smaller parties in the upper house of Parliament, which in turn could help push through this long awaited reform.
The GST Bill, though approved by Lok Sabha, is held up in Rajya Sabha where the ruling NDA does not have a majority.
Regarding RBI's monetary policy stance, the report said the central bank is expected to cut key policy rates by 25 basis points in its August meeting.
"We expect RBI to cut the policy repo rate by an additional 25 bps in August meeting, taking the policy repo rate to 6.25 percent," the report said.
Earlier in April, RBI reduced policy rate by 0.25 percent to 6.5 percent -- its lowest level in more than five years.
While this was the first rate cut after a gap of six months, RBI has lowered the rate by 1.5 percent cumulatively since January 2015.
However, the industry still wants further rate cuts from the apex bank to boost growth.
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