India Ratings & Research revised its FY15 gross domestic product (GDP) growth forecast to 5.7 per cent from its April 2014 forecast of 5.6 per cent.

“Even though the Union Budget FY15 has addressed certain supply-side issues plaguing the economy, we believe a single budget or one year’s policy reforms are not enough to ensure a non-inflationary, sustained and higher economic growth. Moreover, policy announcements take time to play out,” the rating agency said in a statement.

“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 statement said.

However, it expects industrial GDP growth in FY15 to improve to 5.1 per cent from earlier estimates of 4.1 per cent (FY14: 0.4 per cent). If achieved, it will be the highest since FY12 (7.8 per cent). The Index of Industrial Production (IIP) grew 4 per cent over April-May 2014, it said.

On inflation front, the agency expects Wholesale Price Index and the Consumer Price Index-based inflation to decline to 5.4 per cent and 7.9 per cent in FY15, respectively (FY14: 6.0 per cent and 9.5 per cent), expecting the government to intervene in the agricultural commodity market, should the prices rise.

“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 quite likely that the government will overshoot the budgeted targets,” it explained.

Current account deficit (CAD) is estimated to widen to $48.7 billion (2.2 per cent of the GDP), mainly due to improved industrial growth outlook which will boost imports. However, the financing of the CAD may not prove challenging due to higher capital inflow.

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