Indian Economy News

GDP growth to rise to 7.9% in FY 17 due to good monsoon: CRISIL

Pune: A latest CRISIL report expecs GDP growth to rise to 7.9%, agricultural growth to come in above trend at 4% and CPI inflation to remain contained at 5% in fiscal 2017, assuming rainfall is evenly distributed across time and regions.

Sub-normal monsoons have taken a toll on agricultural production in the last two fiscals. As per the third advance estimates for 2015, output is down 2% in rice, 12% in coarse cereals, 0.5% in pulses, 4% in sugarcane and 6% in oilseeds, exacerbating rural distress.

Agriculture GDP growth averaged 0.4% in the last two fiscals, much below the long-term trend of 3%. That's more reason to hope the monsoon is normal this year.

"We expect GDP growth to rise to 7.9% in FY17 with agriculture growth at 4%, assuming a normal monsoon," stated the CRISIL report.

It expects rural consumption to revive, pushing up private consumption. This, in turn, will raise capacity utilisation and kick start the investment cycle by the end of this fiscal.

Consumption-oriented sectors are expected to gain, especially as rural demand soars. These include automobiles, particularly two-wheelers, and consumer durables.

The report added: "Also, according to our estimates, in a positive scenario -- good monsoon backed by favourable temporal and spatial distribution -- agriculture growth can surge to 6% from a weak base of last year and therefore push up GDP growth above 8%."

On the inflation front, it expect ample kharif production to boost supply and bring down food inflation. This will help offset sticky services inflation and higher crude oil prices. CRISIL expects CPI to average at 5% this fiscal.

The monsoon has brought cheer after two years of sub-normal rain. It was a slow start in June, but rains have since caught up and was just 1% below normal as of July 25, 2016.

Among states, it is upbeat for all except Gujarat and Odisha as of July 25, though Assam, Himachal Pradesh and Kerala are also witnessing some stress. Going ahead, assuming rainfall is evenly distributed across time and regions, we expect GDP growth to rise to 7.9%, agricultural growth to come in above trend at 4% and CPI inflation to remain contained at 5% in fiscal 2017. Some risks remain, though.

Excess rainfall in 89 districts across 8 states could impact sowing and therefore agricultural output for the kharif season. Therefore, spatial and temporal distribution of rainfall in the second half of the season, especially in August, will be crucial.

With the advent of monsoons and ample rainfall, the reservoir storage situation has improved. Data till July 14 indicates reservoir storage was 83% of last year's storage and 101% of last ten years' average. This should support agricultural production this season.

As per the Australian Met, the likelihood of La Nina in 2016 has reduced slightly with the probability at 50% (as of July 19). However, it also highlights that in the case La Nina conditions develop further in coming weeks, they will be as strong as the last La Nina occurrence in 2010-12, which was the strongest on record.

"This would be unfavorable to agricultural output and remains a risk," states the report, underscoring risk from excess rainfall.

According to the National Disaster Management Division, 89 districts across 8 states - Madhya Pradesh, Uttarakhand, Arunachal Pradesh, Bihar, Maharashtra, Odisha, Uttar Pradesh and Assam - have witnessed excessive rains and floods, resulting in loss of crops.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

Partners
Loading...