Overall, the economy may grow faster than in the previous year, with acceleration in mining, manufacturing, construction and trade, hotels, transport and communication sectors
The Indian economy could grow in the range of 5 to 6 per cent in 2014-15 with risks broadly in balance around the central estimate of 5.5 per cent, said RBI in its Annual Report 2013-14.Signs of improvement in mining and manufacturing activity, expected pickup in investment, improved availability of financial resources to private sector with lower draft of government on financial savings of the households amid fiscal consolidation, improved external demand and stabilising global commodity prices are expected to support recovery. However, downside risks could play out if global recovery slows, geopolitical tensions intensify or monsoon weakens again in the rest of the season.
All-India cumulative rainfall deficiency in the current monsoon season till August 13, 2014 was placed at 18 per cent of the long period average (LPA), as against an excess of 12 per cent in the corresponding period last year. There has been a marked improvement in the monsoon since mid-July when the deficiency was 43 per cent. I.17 Area sown under kharif crops (till August 14) was 2.3 per cent lower than the normal and was 8.9 per cent higher than the 2009 drought year. Based on the sowing data, it appears that the drop in output may now be restricted mainly to coarse cereals and pulses. The reservoir water levels provide comfort. As on August 13, the level in the 85 major reservoirs was 14 per cent higher than the average over the last 10 years, though it was 12 per cent lower than last year's level on the comparable date.
Even if the rainfall is normal in the rest of the monsoon season, some rainfall deficiency will stay. However, its adverse impact on growth, inflation, fiscal and trade deficits is expected to be small as on the current reckoning, the deficiency in quantitative and qualitative terms is likely to be much less than that in 2009. Moreover any shortfall in kharif could be substantially made good by the rabi crop. On an average basis for the last five years, rabi crop accounted for 50.7 per cent of total foodgrains output. As such, the odds are that agriculture and allied sector could make a positive contribution to overall growth as was the case even in 2009-10.
In case the monsoon weakens again in the rest of the season, there is risk of modest adverse impact on electricity production. This is because reservoir levels could fall short of their full capacities. However, overall prospects for electricity generation remains encouraging despite the likelihood of hydro-power generation decelerating from 18.6 per cent growth registered in the previous year. Hydro-power accounts for about 14 per cent of the total power supply. In the thermal segment that accounts for nearly 82 per cent of power generation, new capacities planned for the year are expected to add 8.9 per cent to overall installed thermal capacity. Similarly, installed nuclear power capacity is expected to go up by 41.8 per cent during the year. Thus, any losses in hydro-power are expected to be more than fully compensated by increased thermal and nuclear power and electricity production could register reasonably good growth.
Overall, the economy may grow faster than in the previous year, with acceleration in mining, manufacturing, construction and trade, hotels, transport and communication sectors. These four segments account for 50 per cent of GDP compared with about 15 per cent in case of agriculture, forestry and fishing, and electricity.
The business and investment climate in the economy is improving with the formation of a stable government at the Centre, a comparatively lower inflation and an improvement in global growth. Coincident indicators such as automobile sales, railway freight traffic, cargo handled at ports and foreign tourist arrivals are pointing towards some recovery in the services sector and automobile sales have shown signs of a turnaround.
The Union Budget 2014-15 is supportive of both investment and savings. Measures taken include an increase in the personal income tax exemption limit that will increase disposable income and increase in investment limit under section 80C of the Income Tax Act as well as the annual ceiling limit in the Public Provident Fund that will encourage savings and improve financing of investment. The proposal to increase the deduction limit on account of interest on loan with respect to self-occupied house property is also expected to increase households' physical savings. The Reserve Bank has complemented these measures by providing incentives for encouraging the flow of bank credit to infrastructure and affordable housing.
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