India's growth to reach 7.8% in 2016: Nomura

New Delhi: India's GDP growth is likely to recover to 7.8 percent this year due to higher public capex, upcoming pay commission awards and a normal monsoon, says a Nomura report.

The economic activity has rebounded early this year from the weakness observed at end-2015, it said.

"Leading indicators still suggest non-agriculture GDP growth will consolidate over the next two quarters. Still, we expect GDP growth to recover to 7.8 percent Y-o-Y in 2016 from 7.3 percent in 2015, due to higher public capex, upcoming pay commission awards and a normal monsoon," Nomura said in a research note.

Urban consumer demand, services and government capex remain the primary drivers of growth, but there are nascent signs of an improvement in external demand and infrastructure sectors. Industry and private investment remain weak, it said.

Meanwhile, the Nomura RBI Policy Signal Index, is now in the neutral (no action) zone.

"Even as CPI inflation has moderated, higher oil prices, an improvement in global growth and a weaker rupee have together reduced the likelihood of further rate cuts in the near term," Nomura said, added that "this is consistent with our expectation of no further rate cuts over the rest of 2016".

Earlier this month, the Reserve Bank of India reduced its policy rate by 0.25 percent to 6.5 percent -- its lowest level in more than five years.

While this was the first rate cut after a gap of six months, RBI has lowered its rate by 1.5 percent cumulatively since January 2015.