Ind-Ra upticks GDP forecast to 7.8%; growth on but not speedy

Ind-Ra has revised upwards India's economic growth forecast to 7.8 per cent for the ongoing fiscal on better monsoon, but said the economy is just "chugging along" despite the euphoria emerging after the formation Modi government at the Centre.
"India Ratings and Research (Ind-Ra) has revised its gross domestic product estimate for 2016-17 upwards to 7.8 per cent from its earlier forecast of 7.7 per cent. The upward revision has been prompted by the progress of monsoon and the sowing of kharif crop so far," the ratings agency said in its research report on 'Review of the Economy'.
With the area under kharif crop sowing 5.7 per cent higher than a normal area so far, it said the agency expects the farm gross value added to grow 3 per cent in the current fiscal as against 2.8 per cent forecasted earlier.

It said the positive impact of monsoon on agriculture will support the overall GDP growth with its backward and forward linkages.
On the macro economy, it said India's growth is in motion but not accelerating.
"Despite the euphoria and the hope that accompanied the change in the Union Government in 2014, the economic growth witnessed since then can at best be described as chugging along," it said.

However, Ind-Ra said it is not to say that the incumbent government has not done anything to revive the growth, several initiatives have been taken for encouraging manufacturing and improving on ease of doing business.

Even though services sector shows its resilience and continues to be bellwether of the economy, unsatisfactory progress on the industrial front is a cause of concern, it added.
With weaker industrial growth in continuation, Ind-Ra expects the sector gross value added (GVA) to grow 7.2 per cent, unchanged from previous forecast.
As investment demand is absent, industrial growth is coming from consumption demand, it said.
"Moderation in both inflation and lending rates of banks is aiding the consumption demand in urban areas. Salary revision of central government employees due to the award of the recommendations of the 7th Central Pay Commission will further aid the urban consumption demand," it said.

The wait is getting longer for an investment recovery which is the main reason to hold acceleration in industrial growth, Ind-Ra said.
The incumbent government has taken several initiatives to revive private investment as also the manufacturing sector growth in the country. However, all this has failed so far to rekindle the animal spirit in the economy, it said.
Corporates, particularly in infrastructure, power, iron and steel and textile sectors, are either repairing their balance sheets or saddled with stagnation or even decline in capacity utilisation.
Further, the rating agency expects the government to
achieve the fiscal deficit target of 3.5 per cent.

The current account deficit (CAD) is expected to be at around USD 29 billion (1.3 per cent of GDP).
Due to lack of global demand and soft commodity prices coupled with tepid domestic investment demand, export and import trends are unlikely to change during the remaining months of this fiscal leading to a fourth consecutive year of a comfortable CAD, it said.
A robust foreign capital inflow is expected to add nearly USD 17 billion to the forex reserve this fiscal, it added.
On inflation, the agency expects an average wholesale and retail inflation at around 3.3 per cent and 5 per cent, respectively.

"The implementation of the 7th Central Pay Commission award is likely to impact house rents directly, a component of CPI. Given the stickiness in food and services inflation, the ability of retail inflation to surprise on the upside therefore cannot be ruled out," the report said.
Despite the threat of food inflation surprising on the upside due to both seasonal and structural issues, Ind-Ra believes that post kharif harvest the prices of pulses will soften as the area so far under pulses has been 39.38 per cent higher than in the normal area.
It also expects fuel and manufacturing inflation to remain subdued.