India’s GDP growth for the next fiscal (FY17) is likely to be steady but sluggish according to India Ratings and Research, a Fitch group company.
The credit rating agency (CRA) has forecast a growth rate of 7.9 per cent in FY17 as against the 7.4 per cent in FY16.
“All major sectors namely agriculture, industry and services are expected to contribute to the gross value added (GVA) growth. Under the assumption of a normal monsoon, the agricultural GVA is expected to recover and grow at 2.2 per cent in FY17 compared with 1.1 per cent in FY16. Since there has not been any past instance of three consecutive monsoon failures, the likelihood of a normal monsoon in 2016 is quite high. The information available so far indicates that La Nina, a phenomenon associated with good monsoons, will hold sway in 2016,” the agency observed.
Also likely, is a miss for the Government on the fiscal deficit front in FY16, the agency observed – up to 4.1 per cent from the budgeted 3.9 per cent.
This would be despite the absolute fiscal deficit coming in at about Rs 5.56 lakh crore, same as budgeted. “Such a situation has arisen due to a likely lower nominal GDP growth rate in FY16 than the 11.5 per cent nominal GDP growth assumed in the FY16 budget estimate,” the report said.
To achieve the fiscal deficit target of 3.9 per cent, the deficit has to be compressed by Rs 21,100 crore. This can be done only by deferring parts of subsidy payments to FY17, cutting down capital expenditure or a combination of both according to the CRA, adding that the deficit target is likely to be achieved by FY17.
Industrial Growth for FY17 is expected to grow at 7.6 per cent - 30 basis points over and above the FY16 number. This according to India Ratings would be on account of the Centre’s focus on ‘Make in India’ and improving the ‘ease of doing business’, besides signs of a revival in investment/consumption cycle coupled with a fall in inflation/interest rates.
The CRA is expecting soft inflation pegging the wholesale price index at 2.7 per cent and consumer price index at 4.9 per cent for FY17.
This would also be due to a likely cut in interest rates (repo rate) by the RBI up to a maximum of 50 basis points in FY17 taking the benchmark G-Sec yield in the 7.2-7.3 per cent range, down from the current range of 7.75 -7.8 per cent.
Finally, current account deficit is likely to widen from $20.1 billion (one per cent of GDP) in FY16 to $28.6 billion (1.3 per cent of GDP) in FY17 putting pressure on the rupee dollar exchange rate. The CRA expects the rupee to trade at an average of 67.5 to a dollar in FY17 aided by comfortable capital inflows.
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