Speed, scope of reform key uncertainty for India: Report

Indian economy will accelerate in the short term as it benefits from low commodity prices, but in longer term, speed and scope of reforms remain a key uncertainty, a global research firm has said.

In its report -- India's economy: the new China? – Wood Mackenzie said India will be an increasingly key market with its fast-growing working age population, energy demand and GDP.

"Broad-based economic indicators are still improving. Our view is that Modi's reforms, though gradual, are making a positive impact on the economy in the short term. It will take time for the new government to work through its proposed reform agenda," the report said.

Wood Mackenzie projected India's real GDP level to overtake Japan and reach over $6 trillion by 2035.

"However, China will remain the largest contributor to global GDP and energy demand growth despite its economic slowdown," the report said.

It, however, cautioned that the pace of reforms of the Narendra Modi-led government could disappoint due to opposition at the central and state levels. Key landmark proposals, such as Goods and Services Tax and land acquisition bills, are facing opposition in the Rajya Sabha. State opposition has also delayed the development of key infrastructure.

Bharatiya Janata Party-led National democratic Alliance, which came to power in May 2015, has the required numbers in the Lok Sabha, but in the Rajya Sabha it lacks a majority.

"Its (India's) economy is expected to accelerate in the short term as it benefits from low commodity prices and modest progress in Modi's reforms. However, external shocks, including weather related shocks, cannot be ruled out.

"Longer term, the speed and scope of reform remains the key uncertainty. Deregulation, infrastructure build, and robust job creation are necessary to unlock India's growth potential," the research firm said.

It said market sentiment over reforms have been generally positive and reflected in the rise of India's equity market.

The government has liberalised the coal sector, eased foreign direct investment (FDI) regulations, and undertaken fuel price reform.

"India is rising. Its working age population is projected to grow over 200 million to reach 1 billion by 2035, accounting for one-fifth of the world's working age population. Real GDP growth is expected to accelerate in the short term and remain robust longer term compared with other key economies," the report added.

Wood Mackenzie also projected India's energy demand to grow 370 million tonnes of oil equivalent (Mtoe) to reach 1,183 Mtoe by 2025.

"After China, India will be the second largest growth region in the world in terms of energy demand. This presents significant opportunities for investment in the currently energy-constrained India," it said.