India is expected to grow at 6.1% in calendar year (CY) 2012, similar to the pace recorded in Q4 2011, the Ernst & Young's quarterly Rapid Growth Markets Forecast (RGMF) released in Mumbai said.
Growth should be picking up in H2 2012, provided the global economy does not experience a further shock. Over the medium term, we expect a strong recovery in investment, which will help lift overall GDP growth over 9% by 2014, it said.
"India's domestic demand-driven growth model is acting as a catalyst for attracting foreign investments into the country. Although the ongoing global uncertainty may have prompted global investors to become more cautious, India's inherent advantages and proven resilience to counter-act macroeconomic challenges generally outweighs these concerns," Ernst & Young India Partner & India Markets Leader Farokh Balsara said.
According to the forecast, in India, the biggest development will be in the lower middle class with the number of households with disposable income of $5,000 to $15,000 rising to around 150 million in 2020 from just under 100 million now. In particular, this represents opportunities for companies in the developed economy such as US and Europe for investments.
While the purchasing managers Index (PMI) and car sales data in January and February of 2012 have hinted at a stronger growth dynamic for India, the country will need to address rising inflation, which is still high. As per the forecast, the country's central bank will not be in a position to cut interest rates until core inflation (excluding food) is on a clear downtrend and that may still be some months off-particularly as the economy actually has gained considerable momentum recently.
The wholesale price inflation should trend down through 2012 to about 5% in Q4, reflecting the lagged impact of the weaker economy and lower food prices, the forecast said.
While the global economy is still in an uncertain state and trade flows remain subdued, rapid-growth markets (RGMs) around the world are proving resilient. RGMs are expected to grow collectively at 5.3% this year, bouncing back to 6.3% in 2013, E&Y said.
Despite the decline in financial wealth in H2 2011 in many markets, demographic trends and rising real incomes over the medium term are set to underpin strong consumption.
As per the forecast, an unexpected, strong pickup in activity towards the end of last year and beginning of this year in some RGMs means they will contribute over one-half of global growth over the next three years.
Rain Newton-Smith, Senior Economic Adviser to Ernst & Young's Rapid Growth Markets Forecast explains, "RGMs are proving resilient in the face of the twin impacts of the Eurozone recession and continued tensions in the Middle East. Although not all RGMs are enjoying equally solid growth prospects, they are still offering good opportunities to companies and investors across a wide range of sectors."