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  3. Strong policy reforms needed to bring economy back to high growth: India Ratings

Strong policy reforms needed to bring economy back to high growth: India Ratings

29 Apr 2014 Evaluate

The Fitch group entity India Ratings has stated that the new government will need to push strong policy reforms to bring economy back to higher growth trajectory. In its latest report it has stated that though the worst appeared to be over, Indian economy is unlikely to migrate to a high growth phase of around 9% over the next two-to-three years. Indian rating has kept its growth forecast for FY15 at 5.6 %.

The rating agency also rejected the possibility of drop in farm productivity saying that the reservoir are a decadal high already and it is too early to assess the impact of possible El Nino. India Meteorological Department (IMD) predicted a sub-normal monsoon this year because of the El Nino effect. It has noted that till April 3, 2014 adequate water storage in major reservoirs was 25 per cent higher than last year and 37 per cent higher than the average of last 10 years which will help in alleviating some pressure which is likely to emanate from lower-than-average seasonal rainfall. The rating agency projects seasonal factors primarily rainfall to continue to exert pressure on inflation. However, it expect that both WPI and CPI-based inflation to fall and average out at 5.5 per cent and 8 per cent in FY15.

Further, India Ratings estimates current account deficit (CAD) to be $45.4 billion (2.1 percent of GDP) in FY15 as against around $32 billion (1.7% of GDP) last fiscal. Capital flows are expected to be buoyant and are estimated to touch $60 billion in FY15. Rise in foreign currency assets and a manageable CAD will support the rupee, which is expected to settle at around 57-58 by end of FY15. It added that a mild decline in inflation and the rupee appreciation will impact interest rate positively and expects 10-year G-sec rate to settle around 8.3-8.4% by end-March 2015. Regarding the industry growth, the report highlighted that the industrial sector will grow by 4.1 % in FY15 mainly due to better mining and electricity sector performance. Indian economic growth is estimated at around 4.9% during the FY14.

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