GDP will grow at 7.7% in 2015-16, India Ratings says

Coimbatore: The country's GDP (gross domestic product) would grow by 7.7% in 2015-16, driven by a further pick-up in private consumption demand, India Ratings and Research has said.

Consumption demand is expected to expand 8.1% in 2015-16 compared to 7.1% in 2014-15 and 6.2% in 2013-14. The economy is estimated to have clocked 7.4% growth in 2014-15.

"A significant moderation in inflation and inflationary expectations is likely to boost consumer sentiments, albeit gradually," the agency said.

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," it said.

India Ratings, which is part of the Fitch Group, expects that agricultural growth will touch 2.1% in 2015-16. "Although much would depend on the spatial/geographical distribution of rain during the monsoon season, the agricultural growth could be lower in case of a sub-normal monsoon," the agency noted.

A sustained government focus on 'Make in India' and 'ease of doing business' and the successful auction of coal mines could push the industrial growth to 6.5% in 2015-16 compared to 5.9% in the previous fiscal.

India Ratings expects that both wholesale price index (WPI) and consumer price index (CPI) based inflation will moderate to 2.4% and 5.6%, respectively in 2015-16.

Retail and WPI inflation declined to 5.2% and negative 2.3% respectively in March. Moderation in inflation and inflationary expectations prompted the Reserve Bank of India (RBI) to cut the repo rate by 25 bps (0.25%) each on January 15 and March 4.

India Ratings expects that RBI will cut the repo rate by another 50 bps (0.5%) by the end of 2015-16. Although the unseasonal rains in March and less-than-normal monsoon in 2015 can up the risk of food inflation, soft global commodity as well as crude prices and low growth in the minimum support price of food grains would keep the inflation within the glide path of RBI, the agency stated.

The fiscal deficit target of 3.9% for 2015-16 is achievable because the projection of government's earning and expenditure for the year is moderate, it said. India, a net commodity importer, benefited considerably from the fall in global commodity prices, especially crude in 2014-15.

Even in 2015-16, the country is likely to reap this benefit, in view of soft crude prices, India Ratings said. As a result, current account deficit for the fiscal could decline to 1% of the GDP from 1.1%, it estimated.

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