The Indian economy is likely to grow by 7.9% in fiscal 2017, the fastest among emerging market economies driven by continued public spending and accommodative monetary policy, investment bank Sachs said in its annual outlook report released on Wednesday.
Poddar expects the wage commission to add about 35 basis points (bps) to gross domestic product growth if implemented in totality by the central government. “If the states implement as well, then we see much more impetus,” he said.
The seventh pay commission envisages hiking wages of central government employees by about 23% and is expected to add pressure to the government’s fiscal deficit.
The push to inflation from the wage hikes along with likely increase in food inflation would prevent the Reserve Bank of India (RBI) from cutting rates, Sachs said. The bank expects RBI to hold rates through calendar year 2016 after having cut them by 125 bps in 2015.
Sachs expects the Fed to hike its rates by 100 bps through 2016, higher than most other forecasters.
The key headwinds to the currency and also to India’s GDP growth could emerge from the external environment as the US Fed’s rate hikes while Europe and Japan continue to maintain an expansionary policy stance. This could induce volatility in markets, the bank said.