Encouraged by the Budget announcements, India Ratings & Research (a Fitch group company) has upped its growth forecast to 5.7 per cent for the current fiscal i.e. 2014-15. Earlier, the estimate was 5.6 per cent.
“We believe that the negative impact of below-average monsoon on agriculture will be more than offset by an industrial recovery. Growth will be boosted by the Budget attempt to address structural issues impacting manufacturing, infrastructure, savings and housings,” the agency said in a report authored by Devendra Kumar Pant, Sunil K Sinha and Apurva Yadav.
However, the report feels that this is just a beginning and a further policy push is required to bring the economy back on a sustained, non-inflationary and high growth path.
The agency’ latest forecast is very similar to the Government’s estimate of 5.4-5.9 per cent and the World Bank’s estimate of 5.5 per cent but much above Nomura’s estimate of 5 per cent. Growth during 2013-14 was 4.7 per cent.
Farm growth
The agency has estimated agricultural growth to come down to 1.3 per cent against the previous estimate of 3 per cent and last year's growth of 4.7 per cent.
Although, monsoon deficit has come down, but the fact is that it is weak and also delayed, which affected khariff crops sowing. As on August 1, the total sowing was 70.06 million hectares against the average of 79.8 million hectares.
”We expect agricultural growth to drop to 1.3 per cent in FY15 (FY14: 4.7 per cent) on delayed as well as weak monsoon. Although the monsoon’s poor spread over space and time in June 2014 (43 per cent below average) recovered in July 2014, the deficiency continues to be 21 per cent,” the agency said in a statement.
Revival in manufacturing
However, slump in agriculture is likely to be offset by revival in manufacturing. “We expects industrial GDP growth in 2014-15 to improve to 5.1 per cent against our earlier estimate of 4.1 per cent. If achieved, it will be highest since 2011-12,” the agency said.
The Index of Industrial Production (IIP) grew 4 per cent over April-May 2014. The index of eight core industries grew 4.6 per cent during 1QFY15. “Although it still early to call it a trend, we believe this could be the beginning of a broad-based industrial recovery, it said.
WPI, retail inflation
Good news is also on the front of prices. The agency expects wholesale price index (WPI) based inflation to come down to 5.4 per cent from the previous estimate of 5.5 per cent and last year's figure of 6 per cent.
Similarly, retail inflation is also expected to go low at 7.9 per cent on the premise that the government would intervene timely and efficiently in the agricultural commodity market, should the prices begin to rise owing to the deficient monsoon.
Earlier it was estimated that the retail inflation would be 8 per cent against 9.5 per cent in 2013-14.
CAD and fiscal deficit
“Our estimate indicates some fiscal slippage in FY15. Consequently, fiscal deficit is likely to exceed the budgeted 4.1 per cent of the GDP and come in at 4.3 per cent. We believe both revenue and disinvestment targets are optimistic. A large part of non-Plan expenditure is of committed nature and it is quite likely that the government will overshoot the budgeted targets,” it said.
Current account deficit (CAD) is estimated to widen to $48.7 billion (2.2 per cent of GDP), mainly due to improved industrial growth outlook which will boost imports. However, the financing of CAD may not prove challenging due to higher capital inflows.