Economy to grow by 7.6%-7.8% in 2015-16; ICRA

Mumbai: The economy would grow by 7.6%-7.8% in 2015-16 despite the headwinds posed by muted global growth and an unfavourable monsoon outlook, ratings agency ICRA has said.

"The improvement in macroeconomic fundamentals reflects the policy actions taken by the government and the central bank, which have been supplemented by tailwinds such as benign commodity prices," said Aditi Nayar, senior economist, ICRA.

Growth of gross value added (GVA) at basic prices is estimated to decline to 7% in the fourth quarter of 2014-15 from 7.5% in the previous quarter due to crop damage caused by unseasonal rainfall, decline in growth of electricity, contraction in non-POL (petroleum, oil and lubricants) merchandise exports and moderation in the pace of expansion of central government spending.

ICRA expects a slowdown in growth of the services sector (10.8% in the Q4 2014-15 from 13.5% in Q3) to be partly offset by an uptick in industrial expansion (5.1% in Q4 compared to 3.9% in Q3). Agricultural output is however expected to stagnate on a year-on-year (y-o-y) basis.

"Higher government spending on infrastructure, simplification of clearances, easing of norms for foreign direct investment, continued reform momentum and further monetary easing of 50 bps (0.5%) are expected to support a revival in investment activity in 2015-16, led by sectors such as roads, urban infrastructure and freight corridors," ICRA stated.

"Moreover, moderating inflation is expected to boost urban consumer demand, while rural demand may post an improvement in the second half of 2015-16," it said. "Nevertheless, the pace of fresh investment in some sectors such as thermal power and steel is likely to remain sluggish on account of the continuing constraints posed by the lingering sector-specific issues," the agency said.

The country's current account deficit would come down to 0.9% of GDP in 2015-16 benefiting from the moderation in commodity prices, a substantial improvement from the alarming levels above 4% recorded in 2011-12 and 2012-13, ICRA stated.

While a recovery in domestic demand and investment conditions is expected to expand import volumes, lower average commodity prices would restrain growth in value terms, it said. Notwithstanding the long-term benefits expected from the 'Make in India' program, focus on improving ease of doing business, enhancing infrastructure and moderating inflation, export growth would remain modest in 2015-16 due to muted improvement in global growth and rupee appreciation on a REER (real effective exchange rate) basis acting as a drag on overall economic expansion, ICRA said.

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