HOME > BUSINESS > Near normal monsoon to push up Indian GDP growth to 7.4-7.6% in this year -ICRA

Near normal monsoon to push up Indian GDP growth to 7.4-7.6% in this year -ICRA

monsoonRating agency ICRA said the normalization of monsoon has increased the probability of GDP growth in India rising to 7.4-7.6% this year as well as that of an interest rate cut during the October-December quarter of this year.

“Following bouts of unseasonal rainfall in the pre-monsoon period, the surplus monsoon rainfall in June 2015 has encouraged early sowing of crops and quelled fears that had arisen when the India Meteorological Department forecast a deficient monsoon for 2015. As on June 26, 2015, the area sown under kharif crops was 23% larger than the year-ago period,” it said.

“The first half of 2015 has recorded excess rain of over 70 mm relative to the long period average (LPA), replenishing groundwater levels and reducing the potency of any shortfall in precipitation in the remainder of the monsoon season,” said Aditi Nayar, Senior Economist, ICRA.

“Nevertheless, only around one-fourth of the total area covered under kharif planting in 2014 was sown by the end of June 2015. Accordingly, rainfall dynamics in the remainder of the monsoon season would continue to impact the sowing pattern and eventual crop yields.”

Taking into account the drag related to the weak rabi harvest in Q1FY16, as well as the lingering uncertainty regarding the ultimate turnout of the kharif harvest, ICRA expects the agricultural sector to record a marginal growth in 2015-16, with an improvement in rural sentiments and consumption activity unlikely to set in until H2FY16.

“However, the recent improvement in growth recorded by the Index of Industrial Production, core sector industries, and various services sector indicators related to air traffic and cargo handled at ports are encouraging. Such factors would support a mild uptick in Indian GDP growth to 7.4-7.6% in 2015-16 from 7.3% in 2014-15.”

In ICRA’s view, the better-than-expected monsoon and sowing turnout so far, modest rise in support prices for various crops and a favourable base effect in some months would keep food inflation in check in the near term, enhancing the likelihood of a Repo rate cut during the ongoing quarter, as long as external developments do not result in excessive INR volatility.

ICRA expects CPI inflation to print in a range of 4.0-6.0% over the remainder of 2015, and average CPI inflation to decline below 5.5% in 2015 from 6.6% in 2014, assuming that crude oil prices remain relatively stable around current levels.

While external developments such as the ongoing crisis in Greece and rate hikes by the US Federal Reserve may impact foreign exchange rates, the INR may display limited vulnerability within the set of emerging market currencies, based on the expectation that India’s economic growth will outperform most peers in 2015-16, it added.

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