Chennai: India can attract FDI to a ratio of 1.5 per cent to two per cent of its GDP by further improving on ease of doing business and building infrastructure, Japanese financial services major Nomura has said.
The group’s chief India economist, Sonal Varma, speaking on the sidelines of the Nomura Investment Forum Asia 2019 in Singapore on Tuesday, said the country is in favourable position to attract foreign firms planning to relocate their manufacturing bases due to trade tension between the US and China.
“We can easily see a ratio of FDI to GDP at 1.5 to two per cent,” Sonal Varma said, adding the conditions such as a large domestic market to attract higher FDI level is in place in India. India gets between one per cent and 1.5 per cent FDI to GDP ratio.
“Given India’s big domestic market, I think India has the pull factor. But the government should focus on two things: first get the infrastructure in place, and second improve on ease of doing business,” she said, reported the PTI.
On RBI
Weak growth amid sub-four per cent inflation sets the tone for continued rate cut cycle, said the bank. It is expecting another 25bp rate cut at the June policy meeting triggered by downside risks to growth.
“After this, having delivered a cumulative 75bp of rate cuts, we believe the RBI will wait and watch for the transmission of its easing to the economy,” Nomura said in its report “Asia Insight – India: New Government, Same Old Growth Story”.
Growth tensions
Nomura believes that the resurgence of trade tensions and its knock-on effect on global growth will also inevitably drag domestic growth.
“We still expect the upcoming Q1 GDP growth print (on 31 May) to disappoint and forecast a slowdown to 5.8 per cent y-o-y from 6.6 per cent in Q4 2018 (Consensus: 6.2 per cent),” said Nomura.
In Nomura’s base case, growth averages 6.2 per cent in Q2 and picks up to seven per cent at end-2019, although the risks appear skewed to the downside.
“We expect slow growth to moderate core inflationary pressures, even though food price inflation has started to rise. Overall, we expect headline CPI inflation to remain below the Reserve Bank of India’s four per cent target through Q1 2020,” said the bank.