Mumbai: Pegging a slightly lower than the official growth forecast at 7.9 percent, leading domestic rating agency India Ratings today projected a 7.7 percent growth this fiscal driven by consumption demand.
"We expect GDP to grow by 7.7 percent, up from 7.4 percent in FY15, driven by a further pick up in private consumption demand. Consumption demand is expected to expand 8.1 percent in FY16 against 7.1 percent in FY15 and 6.2 percent the year before," India Ratings said in a note, basing its optimism on the significant moderation in inflation and inflationary expectations.
The share of private consumption in GDP is around 60 percent. Even investment and government spending will provide adequate support to consumption-led GDP growth, it said.
In the wake of the conflicting views on the monsoons, the report expects farm growth at 2.1 percent this fiscal Although much would depend on the geographical distribution of rains during the monsoon season, the agricultural growth could be lower in case of a sub-normal monsoon.
On industrial growth, it said sustained focus of the government on 'Make in India' and 'ease of doing business' and the successful auction of coal mines may help push industrial growth to 6.5 percent from 5.9 percent last year.
It sees WPI inflation averaging at 2.4 percent and consumer inflation at 5.6 percent in FY16. Retail and WPI inflation declined to 5.2 percent and to a -2.3 percent in March 2015, respectively.
"Moderation in inflation/inflationary expectations would help the Reserve Bank to cut the repo rate by another 50 bps this fiscal," the report said.
It said four key factors-- soft global commodity/crude prices, low growth in the minimum support price, lower pricing power of manufacturers and effective government intervention in the food market--would keep the inflation within the glide path of the RBI and would offset the risks on inflation following the unseasonal rains in March and an expected less-than-normal monsoons.
The report expects the benefits of lower oil prices which saved a whopping USd 60 billion in import bill last fiscal, will continue this fiscal as well. As a result, current account deficit for FY16 could come in at USD 22.5 billion or 1 percent of GDP, down from Rs USD 23.1 billion in FY15 or 1.1 percent of GDP.
The report sees the RBI adding USD 74.2 billion to the forex reserves this fiscal, putting pressure on the rupee to rise. However, it expects the rupee in the 61-64 band against the greenback.
Without attributing any reasons, the report said it sees the government meeting the 3.9 percent fiscal deficit target this fiscal.
