India’s strong economic growth momentum could slow in the coming months, making the central bank shift focus from taming inflation to stimulating demand, according to Nomura Holdings Inc.
The economy’s expansion in the latest quarter surprised on the positive side, but going forward “the tailwinds will turn a bit more into headwinds,” Sonal Varma, chief economist for India and Asia ex-Japan at Nomura, said in an interview on Bloomberg Television Thursday.
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Business cycle has peaked and private investment growth may moderate as a global slowdown will limit the need for expanding existing capacity, Varma said. Moderating nominal growth will lower government revenues and even a higher dividend from the central bank won’t be enough to offset increased fertilizer subsidy costs, she said.
Data released Wednesday showed India’s GDP jumped 6.1% last quarter, much higher than the 5% estimate in a Bloomberg survey. While investment and exports supported the expansion, consumption was subdued, implying people are cutting down on their discretionary spending.
Varma sees the economy growing at 5.5% for the year that started in April, against the central bank’s estimate of 6.5%.
The Reserve Bank of India is scheduled to announce its monetary policy decision June 8 and economists in a Bloomberg survey see it staying on a pause for a second straight meeting.
Inflation is “less of a challenge” now and the country “in a sweet spot with low inflation and strong growth,’ Varma said. “We are expecting policy easing cycle closer to October.”
--With assistance from Sabrina Chan, Rishaad Salamat, Yvonne Man and Menaka Doshi.
