Retail inflation falls as financial agencies forecast 7.9% growth

Reforms, actionable policies and cut in rates key to economic growth

GN Bureau | April 14, 2015


#RBI   #CRISIL   #Morgan Stanley   #inflation growth   #economy   #Moody’s   #Narendra Modi  

India's economic growth is expected to improve to 7.9 per cent in current fiscal year. This figure has been given by global rating agency Crisil and foreign brokerage Morgan Stanley in their reports.

The projection is lower than 8-8.5 per cent GDP growth forecast by the government for 2015-16. Indian economy grew at 7.4 per cent in 2014-15 and 6.9 per cent in 2013-14.

Meanwhile, India’s retail inflation surprisingly eased in March to a three-month low as food prices softened, despite the damage to spring harvest in more than 14 states following unseasonal rainfall.

In its report, titled 'India's Economy is on the Mend, but Corporations Remain Wary', Crisil said the growth prospects "appear brighter", particularly among emerging markets.

"Crisil forecasts India's GDP growth to increase to 7.9 per cent in fiscal year 2016. Our projections are based on falling inflation, declining interest rates, and our expectation of a healthy monsoon this year," said D K Joshi, chief economist of Crisil.

Foreign brokerage Morgan Stanley also said that country's economy will grow at 7.9 per cent this fiscal year and 8.4 per cent in FY17, on the back of policy reforms, a spurt in domestic demand and lower inflation.

The investment cycle is yet to show any signs of pickup and high non-performing assets in the banking sector foster risk aversion and mute monetary transmission and credit growth, Crisil said. "Therefore, it is important for India to stay the course of economic reform and renewed growth and to get the private corporate sector to join in the journey," it added.

Crisil said economy has been on a gradual uptrend since May last year but the country's corporate sector remains in a wait-and-see mode before committing to significant new investments. It said consumer and business sentiment has improved, the government's reforms agenda is strong, and global crude oil prices have fallen.

Morgan Stanley  in its report said "the government's determined efforts to implement policy actions to improve the growth mix, i.e. reviving productive investment and cutting back less effective redistributive policies, are helping the economy move towards the path of faster growth and lower inflation."

Under the new growth computation methodology, the GDP expansion at market prices will go up to 7.9 per cent in FY16 and accelerate further to 8.4 per cent in FY17, it said.

Stating that the risk to the growth forecasts are "evenly balanced", it said the pace of policy actions to revive productivity dynamic, strength of external demand recovery and trend in capital inflows into emerging markets are the key factors to monitor.

On inflation, it said that the retail price will come below 5 per cent, which will create more room for the RBI for rate cuts to push growth.

And there was movement on the inflation front. While the rural retail inflation rate slowed to 5.58% in March from 5.79% a month ago, the urban retail inflation rate eased to 4.75% in March from 4.95% in February. Retail prices rose 5.17% in March, slower than a 5.37% increase in the preceding month, the ministry of statistics said on Monday. Food inflation slowed to 6.14% in March from 6.88% a month ago.

This raises hopes of further monetary easing by the central bank in its next policy review in June.

India’s factory output accelerated to a three-month high at 5% in February against 2.8% a month ago and car sales grew for the first time in three years in March, signalling a sustained turnaround in the industrial activities in the country, after prime minister Narendra Modi government took charge at the centre 11 months ago.

Rating agencies have also been upbeat about India recently, with Moody’s Investors Service Inc. upgrading India’s credit rating outlook to ‘positive’ from ‘stable’, while its peer Fitch kept the outlook unchanged at ‘stable’.

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