Indian economy is recovering at a much slower-than-expected pace, said global financial services major Bank of America Merrill Lynch today. However, it said India's growth was enough to overtake Brazil and Russia to become the second largest emerging market after China.

"Is recovery happening? Yes, but even more slowly than we expected. At the same time, India's relatively faster growth is allowing it to overtake Brazil and Russia in GDP to emerge as the second largest emerging market after China," BofA-ML said in a note.

The firm today also trimmed its growth forecast for India to 5.5 per cent from 6 per cent for the current fiscal, as per the old GDP series. As per the old series, the base year for calculation of national accounts was 2004-05.

The Central Statistics Office (CSO) has now adopted the new series of National Accounts with 2011-12 as base year and subsequently revised the Gross Domestic Product (GDP) growth rate to 6.9 per cent in 2013-14 from 4.7  per cent and 5.1 per cent in 2012-13 from 4.5 per cent.

The RBI has also lowered its economic growth forecast for the current fiscal to 7.4 per cent from its previous projection of 7.6 per cent.

"We have cut our GDP forecasts to 5.5 per cent from 6 per cent for 2015-16 and to 6.5 per cent from 7 per cent for 2016-17 (in the old GDP series) on poor rains as well as delays in global recovery and domestic lending rate cuts," it added.

The global brokerage firm said that the coming months could see a consumption recovery largely driven by four factors -- softer lending rates, public sector salary hikes after the 7th Pay Commission, household savings on lower oil prices and a possible hike in wheat MSP before the early-2017 Punjab/UP polls.


On RBI rate cut, BofA-ML said, "We expect the RBI to cut another 25 bps in February after it meets its under-6 per cent January 2016 inflation mandate."