New Delhi: Indian economy is expected to grow at about 6.5 percent in the next fiscal, on the back of a similar growth rate likely in the industrial sector during the period, ratings firm India Ratings & Research said Thursday.
"India Ratings & Research (Ind-Ra) expects FY16 gross domestic product (GDP) to grow 6.5 percent based on its estimates that the industrial sector will grow 6.5 percent," the ratings agency said here today.
In the current fiscal ending March 2015 (2014-15), the domestic economy is likely to grow at about 5.6 percent and the industrial sector at 3.6 percent, it said.
"The agency is of the view that a number of announcements made in the FY15 budget to address the structural issues plaguing industrial and infrastructure sector could gather pace in FY16 besides few more being announced in the forthcoming budget," it said in a statement.
Government's push for Make in India which focuses on select 26 sectors and improving the 'ease of doing business' will aid the manufacturing/industrial growth, it added.
"We believe that the economic fundamentals are going to improve. When the Make in India gets rolling, the demand for raw materials is going to move up," said Devendra Kumar Pant, Chief Economist, Ind-Ra.
On inflation, it expects that both Wholesale Price Index (WPI) and Consumer Price Index (CPI) to moderate to 2.8 percent and 6 percent respectively in 2015-16.
In response to declining inflation and inflationary expectations, the Reserve Bank (RBI) cut the repo rate by 0.25 percent today.
"Ind-Ra expects RBI to cut the repo rate by another 75 basis points (0.75 percent) by FY16. The moderation in inflation is based on the assumption of a normal rainfall in 2015, a moderate hike in procurement price, soft global commodity prices and near stable rupee-dollar exchange rate," it added.
Declining crude prices is a windfall gain for the Indian economy, said the agency, adding that it has improved both the inflation and fiscal outlook.
"As the bond market had already factored in the expected rate cut, the average 10-year government-security yield fell to 7.93 percent in December 2014 from 8.75 percent in August 2014. Ind-Ra expects it to fall in the range of 7.1-7.2 percent by March 2016."
Fall in global crude prices, increase in excise on petroleum products, cancellation of coal block allocations and penalties imposed, higher surplus transferred by RBI to the government and the announced 10 percent cut in the non-plan expenditures are all likely to help the government balance its revenue and expenditure better in FY15, the agency added.
"However, Ind-Ra believes these will still not be enough to bridge the gap arising out of the shortfall in tax and non-tax revenue and the fiscal deficit in FY15 will be 4.2 percent of GDP.
"However, the fiscal deficit could fall to 3.9 percent in FY16 with higher growth, expected tax reforms and expenditure rationalisation," said Ind-Ra.
On the Current account deficit (CAD) front, it expects CAD to widen to USD 46.5 billion in FY16 (2.2 percent of the GDP) from USD 41.9 billion in FY15 (2.1 percent of GDP).
"However, it will not pose any threat to macroeconomic stability. Ind-Ra expects capital inflow to comfortably finance CAD and help rupee trade at an average rate of 63/USD in FY16," it added.
