India's GDP is likely to ‘auto correct’, and the headline growth of the country in this fiscal is expected to remain flat at 7.4 per cent, says an HSBC report.
According to the global financial services major, India's new gross domestic product series seem to exaggerate the economy's true growth rate and this overestimation is likely to narrow over the next few quarters.
"As prices normalise over the next six quarters, this overestimation should gradually narrow," HSBC said in a research note adding that they forecast headline growth over 2016-17 fiscal to remain flat at 7.4 per cent.
The global brokerage firm also noted that the country is not likely to see a staggering fall in overall GDP as the overestimation narrows.
"While we are likely to see manufacturing growth soften over the next six quarters, a similar quantum of rise in agricultural growth on the back of normal rains could offset the fall," it said adding that the share of manufacturing and agriculture in India's GDP is not too different (17 per cent and 15 per cent, respectively).
According to HSBC, while normalising manufacturing growth and banking sector stress are likely to be a drag, a bounce-back in agriculture alongside the ongoing consumption revival could just about offset the slowdown.
"In our view, consensus estimates that are pegging India's GDP growth at much higher levels over the next year could be in for some disappointment," it said.
The Reserve Bank of India in April had said that the economy is likely to grow by 7.6 per cent in the current fiscal on the back of favourable monsoon.
The Finance Ministry has projected Indian economy to grow 7-7.75 per cent in the current fiscal.
The Asian Development Bank too had projected Indian's economic growth for current fiscal at 7.4 per cent.
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