Domestic rating agency India Ratings has revised its FY15 gross domestic product (GDP) growth forecast to 5.7% from 5.6% on a good show by the industrial sector, but highlighted that it was impossible for the government to meet its ambitious fiscal deficit target of 4.1%. The agency asserted that though the Union Budget addressed certain supply-side issues plaguing the economy, but just a single budget or single year’s policy reform would not be enough to ensure a non-inflationary, sustained and higher economic growth.
The domestic rating agency, which is a part of the international rating agency Fitch Group, expects industrial growth to improve to 5.1% for FY15 against the earlier estimate of 4.1% and further noted that this growth if achieved would be strongest since the 7.8% notched up in FY12, adding that factors like a 4% jump in factory output for the first two months of the fiscal and 4.6% growth in the core sector in the first quarter had already been pointing to the 'beginning of a broad-based industrial recovery.
However, on the fiscal deficit front, it highlighted there will be a fiscal slippage in FY15 and the government will not be able to achieve its target of reducing the fiscal deficit to 4.1%. Further, it also estimates Current Account Deficit (CAD) to widen to $48.7 billion, which is 2.2% of the GDP, mainly due to the improved industrial growth outlook which would boost imports.
On the inflation front, the agency expects Wholesale Price Index (WPI) as well as Consumer Price Index (CPI) based inflation to decline to 5.4% and 7.9% respectively in 2014-15. However, this was based on premise that the government would intervene timely and efficiently in the agricultural commodity market, should the prices begin to rise owing to the deficient monsoon.
