India Ratings pegs FY15 growth at 5.6%

Fitch group entity India Ratings on Monday kept its growth forecast for 2014-15 unchanged at 5.6 per cent, despite the India Meteorological Department (IMD) predicting a sub-normal monsoon this year. The official estimate for growth in 2013-14 is 4.9 per cent, against a decade-low of 4.5 per cent in 2012-13.

In a report, the rating agency said though the worst appeared to be over, it was unlikely the Indian economy would shift to a high-growth phase of about nine per cent through the next two-three years. "The agency believes the economy, at this point of time, is delicately balanced and requires a serious policy push to return to the high-growth path," the report said.

Despite the likelihood of the El Niño weather phenomenon, India Ratings believes it is too early to assess its impact on Indian agriculture. Adequate water levels in major reservoirs, 25 per cent higher than last year and 37 per cent higher than the average of the last 10 years (as on April 3), would cushion the adverse impact of low rainfall, if any, it said. Also, agricultural output depended more on the spread of rainfall than the average quantum, the report said.

The agency expected seasonal factors (primarily rainfall) to continue to exert pressure on inflation. However, it expected both Wholesale Price Index-based inflation, as well as Consumer Price Index (CPI)-based inflation to fall to an average of 5.5 per cent and eight per cent, respectively, in 2014-15.

The Reserve Bank of India's monetary policy stance would be decided by the trajectory of retail inflation and the new government's fiscal policy, it said. Ruling out the possibility of sharp monetary easing by the central bank this financial year, it estimated a base-case scenario of a 25-basis-point cut in policy rates, in the second half of 2014-15.

Meanwhile, YES Bank has said agricultural growth could to shrink to 0.9 per cent, against its base-case scenario of 3.3 per cent, in the event of a full-blown El Niño. It also said there was an upside risk of one per cent to average CPI-based food inflation and 0.7 per cent to average CPI inflation this financial year.