In a major boost to economic growth for 2017, the India Ratings and Research (Ind-Ra) has revised its gross domestic product (GDP) growth forecast for Fiscal Year (FY17) upwards to 7.8% from its earlier forecast of 7.7%.
The upward revision has been prompted by the progress of monsoon and the sowing of kharif crops until now. Barring the
exception of the East and Northeast, the rainfall in other parts of the country has been more than the national average.
With a favourable monsoon so far, Ind-Ra expects rural demand to recover in FY17. This coupled with urban demand, which will be aided by the Seventh Central Pay Commission payout, will give a fillip to the consumption demand in the economy.
Ind-Ra expects consumption demand to grow at 8.4% in FY17. However, industrial growth at 7.2% in FY17 will still be lower than the 7.4% witnessed in FY16.
The key factor that is holding the acceleration of industrial growth is investment recovery. The incumbent government has taken several initiatives in this regard.
To encourage manufacturing activity, there has been a concerted focus on improving the ease of doing business through programmes such as Make in India, Start Up India, among others.
The debt-fuelled investment boom that began during FY10-FY11 has taken a heavy toll on the financial health of both corporates and banking sector.
Ind-Ra expects the Wholesale Price Index and Consumer Price Index based inflation to come in at 3.3% and 5.0%, respectively.
Despite a bit rusty fiscal arithmetic, Ind-Ra expects that the union government will still be able to achieve its fiscal deficit to the GDP target of 3.5% in FY17.
Ind-Ra further expects FY17 to be the fourth consecutive year of comfortable current account deficit (CAD) deficit at USD29.0bn (1.3% of GDP). Ind-Ra believes that the export and import trends will not change during the remaining months of this fiscal due to the lack of global demand and soft commodity prices coupled with tepid domestic investment demand.
A robust foreign capital inflow is expected to add nearly USD17bn to the forex reserve in FY17. Yet, Ind-Ra expects average INR/USD to be 67.79 in FY17 due to active RBI intervention in the forex market.