India’s GDP growth cycle may need to weather the 'storm' in the medium term: Nomura

Also, with inflation set to rise significantly above previous predictions, it expects the central bank to raise hikes by 200bps (2pp) by Q3FY23. The rate hikes are expected to start in June with 25 bps (.25pp).

Medium-term challenges

In the medium term, domestic mass consumption will take a hit from inflation and companies passing on costs to customers, and uneven economic recovery, according to the brokerage. While the central bank has revised its inflation forecast upwards to 5.7 percent (from 4.5 percent) for FY23, Nomura expects inflation to touch a much higher figure for the fiscal at 6.6 percent. It has taken this view “in light of the pending increases in fuel prices, higher commodity prices, upside risks to food prices, reopening pressures and elevated inflationary expectations”.

Also read: Singapore says world could face recession in next two years

Also, in the medium term, exports will be hurt by the weakening in global growth from the Russia-Ukraine standoff, China’s lockdowns and tighter financial conditions. Nomura expects “the external sector outlook to worsen from mid-2022 onwards”. 

While there are reports of the fourth wave coming, the brokerage believes it is “too early to view this as a significant downside risk for growth”. This is because “economies are learning to live with the virus; newer variants are infectious but not as deadly; and there is reduced public and policy appetite for a return of serious restrictions”.

It also expects future waves’ disruptive influence on economic sentiment to weaken.