HSBC sees India's economic growth unchanged at 7.1% in FY18 on lower investments

India's growth is likely to remain unchanged at 7.1% this fiscal, as investments are low and government spending may not remain high given the fiscal consolidation path the country is treading, says a report.

"Growth numbers were marked down marginally but still remain higher than ours," HSBC said in a research note.

It further said, "we have a below-consensus view that growth will be flat at 7.1% in 2017-18".

According to the global financial services major HSBC, output gap in the country is likely to remain negative for longer period of time.

In its policy review meet on Wednesday, the central bank also lowered its growth forecast to 7.3%, from 7.4% earlier.

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The report said that investment still remained low in the country, while urban wages are growing but at multi-year lows. Moreover, government spending may not remain as high given the fiscal consolidation path, and the rise in exports over the last few months are showing some signs of moderation. 

HSBC said though "rural growth could come in high if rains are strong, but that would just about offset the weakness from other sectors. This means that the output gap is likely to remain negative for longer".

Regarding Reserve Bank of India's (RBI) monetary policy stance, the report said a prolonged pause is likely with risks of a rate cut in August.

"Given that we believe inflation expectations have fallen into a virtuous cycle, anchoring inflation at around 4%, we do not find a pressing need for the RBI to either cut or hike policy rates by a large quantum," it said.

However, there are risks of some moderate easing later in the year, particularly a 25 basis points rate cut in August, if the current softness in inflation turns out to be durable, it added.  

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