The results of latest round of FICCI's Economic Outlook Survey puts across a median GDP growth forecast of 7.7 percent for the fiscal year 2016-17. The growth in 2016-17 is expected to be supported by an improvement in the agricultural and industrial sector performance. Prediction of a good monsoon after two consecutive years of sub-optimal rainfall backs the improved outlook in the current fiscal.
According to the survey results, agriculture sector is expected to record a median growth of 2.8 percent in 2016-17, with a minimum and maximum range of 1.6 percent and 3.5 percent respectively. Industrial growth is anticipated to grow by 7.1 percent in 2016-17, while services sector growth is estimated at 9.6 percent.
The survey was conducted during April/May 2016 among economists belonging to the industry, banking and financial services sector. The economists were asked to provide forecast for key macro-economic variables for the year 2016-17 as well as for Q4 (January-March) FY16 and Q1 (April-June) FY17.
The median growth forecast for IIP has been put at 3.5 percent for the year 2016-17, with a minimum and maximum range of 3.0 percent and 4.5 percent respectively.
The outlook of the participating economists on inflation remained moderate. The median forecast for Wholesale Price Index based inflation rate for 2016-17 has been put at 2.2 percent, with a minimum and maximum range of (-)1.3 percent and 2.9 percent respectively. The Consumer Price Index has a median forecast of 5.1 percent for 2016-17, with a minimum and maximum range of 4.5 percent and 5.5 percent respectively.
Views of the economists were sought on whether the government will be able to achieve the fiscal deficit target of 3.5 percent in 2016-17. The government has been serious about treading on the path of fiscal consolidation and maintained its credibility by meeting the targeted fiscal deficit of 3.9 percent for the financial year 2015-16.
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A majority of the participating economists believe that the fiscal deficit target for the year 2016-17 seems achievable. It was pointed out that some of the enabling factors would include expectation of a normal rainfall, improved buoyancy in domestic growth leading to higher revenue collection through direct and indirect tax collections and government continuing with subsidy rationalization.
It was also felt that going ahead, risk could arise from an increase in global crude oil prices and this could possibly change the projected trajectory of fiscal deficit this year. A few economists also pointed out that continuing productive capital expenditure like infrastructure will be important as that will remain a major driving factor to push the economy forward.
Further, on being asked about expectations for recovery of the banking system, majority of the economists felt that while the government and the RBI are working together to address the issues at hand, recovery will take time. It was unanimously felt that a turnaround in this fiscal year looks unlikely and an improvement in numbers would not come until next financial year.
In addition, economists also shared their prognosis about the expected recovery in the investment cycle. A majority of the economists were of the view that investment cycle will take at least two more quarters to witness a pickup. It was further opined that an uptick is likely post monsoons as good monsoons will give an impetus to rural demand.
It was also proposed that greater investments are needed towards building necessary rural infrastructure (such as warehouses, roads) and rural supply chain infrastructure. This will not only lead to seamless movement of agricultural commodities across the country but will also be the key to generate greater income for farmers.
Besides ensuring higher public spending on rural infrastructure, economists believed that increasing expenditure on NREGA will also help increasing farmer incomes especially during distress in the agriculture sector.