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  3. India Ratings expects GDP to grow 7.7% in FY16

India Ratings expects GDP to grow 7.7% in FY16

28 Apr 2015 Evaluate

Domestic rating agency India Ratings, for FY16 has projected a 7.7 percent growth in gross domestic product (GDP). Though, the numbers are slightly lower than the official growth forecast at 7.9 percent, but it has said that the gradual economic recovery will be driven by a further pick up in private consumption demand.

As per the rating agency, the consumption demand is expected to expand 8.1% in FY16, compared to FY15: 7.1% and FY14: 6.2%. It has also said that the significant moderation in inflation and inflationary expectations is likely to boost consumer sentiments, albeit gradually. The share of private consumption demand in GDP is around 60%. Even investment and government expenditure would provide adequate support to consumption-led GDP growth.

India Ratings further expects both wholesale price index (WPI) and consumer price index (CPI) based inflation to moderate to 2.4% and 5.6%, respectively, in FY16. Retail and WPI inflation declined to 5.2% and negative 2.3% in March 2015, respectively. It expects RBI to cut the repo rate by another 50bp by FYE16. Although the unseasonal rains in March 2015 and less-than-normal monsoon in 2015 can up the risk of food inflation, the rating agency believes that a soft global commodity/crude prices, low growth in the minimum support price of food grains in FY16, low pricing power of the manufacturing sector and effective government intervention in the food market would keep the inflation within the glide path of RBI.  It thus expects the average 10-year G-sec yield to trade in the range of 7.2%-7.3% by FYE16 and the RBI adding $74.2 billion to the forex reserves this fiscal, putting pressure on the rupee to rise. However, it expects the rupee in the 61-64 band against the greenback.

The report expects the benefits of lower oil prices which saved a whopping $60 billion in import bill last fiscal, will continue this fiscal as well. As a result, current account deficit for FY16 could come in at $22.5 billion or 1 percent of GDP, down from Rs $ 23.1 billion in FY15 or 1.1 percent of GDP.

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