The Indian economy is expected to clock a GDP growth of 7.4 percent this fiscal largely driven by the lagged impact of a good monsoon and increased consumer spending, supported by pay commission awards, a Standard Chartered report says.
The expectations of a growth recovery are contingent on consumption revival, especially rural demand as investment-led recovery will likely be gradual amid rising external woes, the global financial services major said.
"We expect consumption to replace investment as the growth driver in financial year 2016-17," Standard Chartered in a research note said adding, "we forecast financial year 2016-17 GDP growth of 7.4 percent".
According to the global brokerage firm, the recovery in rural consumption due to better monsoons is likely to support the consumption momentum generated by higher pay for public-sector employees.
The urban consumption is expected to pick up further, driven by the implementation of the 7th Pay Commission and a sharp hike in defence pensions under the One Rank One Pay (OROP) pension scheme.
Further, Standard Chartered expects the rural demand to recover in the ongoing fiscal for the first time since 2013-14 as good rains have the potential to boost agricultural-sector growth to 4-5 percent this fiscal.
Moreover, some support from non-budgetary channels for financing agriculture investment is also expected in this financial year.
The report further noted that weaker global growth is likely to affect India's pace of recovery.
"India is a domestic market-oriented economy, but its correlation with global growth has increased in recent years... We therefore expect external headwinds to adversely affect India's growth performance in FY17," it added.
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