FY17 GDP growth for India revised to 7.7%
Recently Sunil Kumar Sinha, Principal Economist, India Ratings & Research has revised its gross domestic product (GDP) growth forecast for FY17 downwards to 7.7% from its earlier forecast of 7.9%. Despite favourable prospects for agriculture due to an above normal monsoon, industrial recovery is proving to be a drag on the FY17 growth prospect.
The resilience of Indian agriculture on monsoon has increased over the years. As a result, agriculture no longer witnesses a sharp decline in output and gross value added (GVA) in the years of a sub-par monsoon. As the downside to agriculture has reduced due to a subpar monsoon so has the upside to agriculture with a favourable monsoon.
Ind-Ra expects at least one more (25bp) policy rate cut by RBI in FY17 and a faster monetary transmission due to the cut in small savings rates and as banks adopt the marginal cost based lending rate. Although FY17 fiscal arithmetic looks a bit sketchy, Ind-Ra believes the government will be able to achieve its fiscal deficit target 3.5% of GDP.
Given the global/domestic economic conditions, Ind-Ra expects the current account deficit in FY17 to remain benign at 1.2% of GDP. Accretion to forex reserves is expected to be about USD28bn and average INR/USD to be 67.79 in FY17.However, Ind-Ra sees pressure emerging on the services export and remittances front in FY17.