Gradual cyclical recovery to continue; FY17 GDP at 7.7%: Citi

The Indian economy is likely to witness gradual cyclical recovery, mainly driven by consumption led demand and is likely to clock a GDP growth of 7.7 percent in the next financial year, says a Citigroup report.

According to the global financial services major, the gradual recovery process would continue going forward with consumption edging investment (supported by the implementation of the seventh pay commission).

"A period of consolidation would see GDP growth at 7.7 percent in financial year 2016-17," Citigroup said in a research note.

According to data of the Central Statistics Office (CSO), the economy is expected to grow at a five-year high of 7.6 percent in the current fiscal.

The CSO data showed that the economy grew at 7.6 percent in the first quarter, 7.7 percent in second and 7.3 percent in third.

Citing quarterly trends, the report noted that there might be some scope for downward revisions to the data.

"In order to meet the financial year 2015-16 growth of 7.6 percent, the fourth quarter (January-March) GDP growth will have to accelerate back to 7.7 percent. This suggests some scope for downward revisions later as a cloud of global uncertainty hangs over the fourth numbers," the research note said.

Moreover, manufacturing growth of 12.6 percent in the third quarter was in contrast to market expectations of slower growth caused by flood-related disruptions in southern states, it added.

On the fiscal deficit front, the report noted that "with financial year 2015-16 nominal growth falling short of government's budget projection of 11.5 percent, there could be a potential slippage in financial year 2015-16's fiscal deficit to 4.1 percent against the budgeted 3.9 percent even if the government meets its fiscal deficit target of Rs 5.6 trillion.