Indian economy may grow at 7.8% on the back of good monsoon: FICCI

Federation of Indian Chambers of Commerce and Industry (FICCI) in its latest ‘Economic Outlook Survey’ report based on a survey among leading economists belonging to the industry, banking and financial services sector, during July to August period of 2016, has estimated a median Gross Domestic Product (GDP) growth at 7.8% for the current financial year and expects a median Gross Value Added (GVA) growth at 7.6%.

The report stated that there has been a marginal improvement in the growth estimate for 2016-17 as compared to previous year, on back of better performance of the agriculture and industry sector. The good monsoon is expected to support agricultural production. The improvement in rural demand on the back of a pickup in farm sector is likely to give an impetus to industrial growth. Industry is projected to grow at 7.3% in 2016-17, 0.2% points higher than the projection of previous year. However, the service sector growth indicated a marginal decline this year as compared to previous year.

According to the survey, the median growth forecast for index of industrial production (IIP) is estimated at 3.5% for the year 2016-17, with a minimum and maximum range of 2.0% and 4.3% respectively. The median forecast for wholesale price index-based (WPI) inflation rate for 2016-17 has been put at 2.4%, while for the consumer price index-based (CPI) inflation has been set at 5.2%. It further said that recent data points indicate an increase in inflation on the back of elevated food prices. However, it said that prices are expected to remain range bound going ahead given good monsoons and an improved acreage.

On banks deposit rates, the report stated that it will take time for the banks to make any further reductions in deposit rates. While the moves undertaken by the Reserve Bank of India (RBI) and government are likely to reduce the banks’ operational cost; the high stock of non-performing assets (NPAs) and provisions for public sector banks is posing a major challenge as far as transmission is concerned. Further, it stated that for most Indian banks, time deposits remain the most important source of bank funding as compared to other sources of funding (such as market borrowing) as it is cheaper and allows banks to enjoy higher interest spreads. It was pointed out that the growth of time deposits was seen at a 53-year low of 9.9% in 2015-16.

FICCI said, as far as exports are concerned, a change (devaluation) in the exchange rate can only help in the short run. In the long run, it would be ineffective as other countries would follow suit. The current rupee-US Dollar exchange rate is at an appropriate level to support exports and keep the import bill at manageable levels. It added that the country recently introduced reforms such as goods and services tax (GST), Insolvency and Bankruptcy Code, etc., which are steps in the right direction.