India Ratings and Research on Thursday lowered India's growth forecast to 7.5% for the current fiscal through March 2016, from its earlier forecast of 7.7%, “primarily due to the lower agricultural growth caused by a deficient rainfall.”
India Ratings and Research on Thursday lowered India’s growth forecast to 7.5% for the current fiscal through March 2016, from its earlier forecast of 7.7%, “primarily due to the lower agricultural growth caused by a deficient rainfall.” The country’s gross domestic product, or GDP grew 7.3% during the last fiscal.
“Although Indian agriculture has over the years become more resilient to monsoon shocks; agricultural output in a large part of India is still monsoon dependent,” it says.
The credit ratings agency expects agriculture growth to expand to 0.9% during the current fiscal from 0.% during the last fiscal, boosted by an increase in sowing of Kharif crop for 2015, it said. Until October 16, the total area sown under Kharif crops were at 10.388 million hectares, higher than the 102.66 million hectares, during the same period a year earlier.
India Ratings expects the industry to expand by 0.2 percentage points to 6.8% during the current fiscal, higher than its earlier forecast.
“Although investment is showing the signs of incipient recovery,” the credit ratings agency says it “believes a full blown investment recovery will take anywhere between 12-18 months.”
The government’s ‘Make in India’, a budgetary push, the early signs of revival in investment/consumption cycle coupled with a fall in inflation/interest rate are expected to drive the industrial recovery, it said.
With significant moderation in inflation and inflationary expectations, “the likelihood of the consumption demand growing at 8.2% has brightened in FY16,’ it said further. Inflation was at 6.3% in the last fiscal and 6.2% in the fiscal before last.
India Ratings expects the inflation based on both Wholesale Price Index and Consumer Price Index to moderate to negative 1.5% and 4.8%, respectively, in FY16, as compared to 2.0% and 5.9% respectively, during the last fiscal.
“Despite unforeseen supply side shocks to select agricultural commodities, the overall inflation has remained benign so far in FY16 and Ind-Ra expects it remain so even in the remaining months of this fiscal,” it said.
Citing Reserve Bank of India’s promptness to cut the repo rate by 125 basis points so far in 2015, the central bank has “nearly shut the door on further rate cut” after its fourth bi-monthly review in late September when it cut rates by 50 basis points. Hence, the credit ratings agency expects the average 10-year G-sec yield to trade in the range of 7.2%-7.3% by FYE16.
India, is benefiting from soft commodity prices, especially crude, as the country is a net commodity imports.
“Till September this fiscal, imports contracted 14.0%. A slowdown in global economic growth is one of the key reasons for soft global commodity prices,” it said. “However, the flip side of the global slowdown is that our merchandise exports also contracted by 17.5% till September this fiscal. As a result, the current account deficit for FY16 could come in at USD20.7bn (1.0% of the GDP), down from INR27.9bn in FY15 (1.3% of GDP).”
India Ratings expects India to have a net addition of $66.2bn to its foreign exchange reserves during the fiscal, as capital inflows are likely remain robust, but this may put pressure on the rupee to appreciate, it said. The agency expects the central bank to intervene in the forex market, “leading to the rupee settling for an average 64.95/USD in FY16 against 61.14/USD in FY15.”
The credit ratings agency also said it believes that the government’s current fiscal deficit target of 3.9% for the fiscal “is achievable because the projections of government’s net earnings and expenditure for the year are modest.”