New Delhi: Forecasting Indian economy to grow 7.5 percent in the current and next year, Moody's Investors Service today said the expansion is primarily driven by rising consumption and sustained improvement in private investment was needed to maintain the momentum.
The Indian economy had grown by 7.3 percent in 2015-16, Moody's said adding private investment remains weak.
"India, as a net importer of commodities, has benefited from falling prices and growth will be driven by rising consumption.
However, a sustained improvement in domestic private investment would be required for the growth momentum to be sustained," Moody's said in its Global Macro Outlook 2016-17.
It said growth will pick up slightly, climbing to 7.5 percent in 2016 and 2017, from 7.3 percent in 2015.
Modest exposure to trade in goods and a net-commodity importing status has to some extent shielded the Indian economy from external headwinds.
"Weak global growth has meant a 9 percent year-over-year decline in total exports in real terms in 2015Q4, after declining by an average annual rate of 5.6 percent in the first three quarters of 2015," it said.
Also, investment spending fell in the last quarter of 2015, as did industrial production, and capital utilisation rates remain low.
Overall economic growth is supported by robust consumer spending, which makes up 55 percent of aggregate demand in the economy.
"The prevailing low headline inflation is expected to remain so, given the current forecast of a good monsoon season, and should allow the Reserve Bank of India to sustain its current accommodative stance," Moody's said.
It expected the Indian economy to continue to grow close to an annual rate of 7.5 percent in real terms in 2016 and 2017, largely driven by private consumption growth.
"Private spending will be supported by the implementation of the public sector salary increases, mandated by the 7th Pay Commission, and a rise in rural incomes, provided the forecast of a good monsoon is realised," said.
Looking forward the impact of weaker commodity prices is likely to fade over time with the stabilization of commodity prices.
"Combined with the fact that external demand is likely to remain lackluster, a sustained improvement in domestic private investment would be required for the growth momentum to be sustained," it said.
Moody's said weak growth in emerging markets, driven by low commodity prices and waning export demand, will continue to act as a drag on the global economy this year.