India Ratings expects GDP to grow at 6.5% in 2015-16

Shishir Sinha New Delhi | Updated on January 24, 2018


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On a day when RBI ended the long wait for rate cut, a leading rating agency India Ratings (Ind-Ra) has estimated the industry to grow at 6.5 per cent in 2015-16 against the projected 3.6 per cent in the current fiscal. This, in turn is expected to boost the overall growth which could grow at 6.5 per cent in the next fiscal from 5.6 per cent this year.

"Economy has bottomed out," Sunil Kumar Sinha, Principal Economist and Director (Public Finance) of India Ratings, said, while releasing the first outlook for next fiscal. However, he cautioned that there would be more worrying factors from the domestic side.

Reforms to gather pace

The agency is of the view that a number of announcements made in the last Budget to address the structural issues plaguing industrial and infrastructure sectors could gather pace in the next fiscal, besides few more being announced in the new Budget, likely to be announced on February 27.

Also, the government’s push for ‘Make in India’ (focus on select 26 sectors) and improving the ‘ease of doing business’ will aid the manufacturing/industrial growth.

Sinha's colleague and Chief Economist of the agency, Devendra Kumar Pant, has expressed optimism over improvements in the fundamentals. Besides this and "softening of inflation further, there will be faster monetary easing by RBI''.

WPI, retail inflation

The agency expects both wholesale price index (WPI) and consumer price index (CPI) based inflation to moderate to 2.8 per cent and 6.0 per cent, respectively, in FY16. After 25 basis points cut on Thrusday, it hopes the RBI to cut the repo rate by another 75bps by FY16.

The moderation in inflation is based on the assumption of a normal rainfall in 2015, a moderate hike in procurement price, soft global commodity prices and near stable rupee-dollar exchange rate.

Crude oil price fall

Declining crude prices is a windfall gain for the Indian economy. It has improved both the inflation and fiscal outlook. As the bond market had already factored in the expected rate cut, the average 10-year G-sec yield fell to 7.93 per cent in December 2014 from 8.75 per cent in August 2014. Ind-Ra expects it to fall in the range of 7.1 per cent to 7.2 per cent by March 2016.

Events/actions such as a dramatic fall in global crude prices, an increase in excise on petrol and diesel, cancellation of coal block allocations and penalties imposed, higher surplus transferred by RBI to the government and the announced 10 per cent cut in the non-Plan expenditures, are all likely to help the government balance its revenue and expenditure better in FY15.

However, Ind-Ra believes these will still not be enough to bridge the gap arising out of the shortfall in tax and non-tax revenue and the fiscal deficit in FY15 will be 4.2 per cent of GDP. However, the fiscal deficit could fall to 3.9 per cent in FY16 with higher growth, expected tax reforms and expenditure rationalisation.

Published on January 15, 2015

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