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India Ratings ups GDP growth estimate to 5.7%, predicts fiscal slippage

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India Ratings ups GDP growth estimate to 5.7%, predicts fiscal slippage
Domestic rating agency India Ratings on Thursday increased its FY15 GDP growth estimate marginally to 5.7 percent on a good show by the industrial sector, but said the government will not be able to meet its ambitious fiscal deficit target of 4.1 percent.

The overall GDP growth estimate was revised to 5.7 percent from the earlier 5.6 percent, largely on the back of an expected improvement in the industrial activity, even though agriculture will be a drag factor, it said in a note.


The agency said industrial growth will improve to 5.1 percent as against the earlier estimate of 4.1 percent. The industrial sector grew at 0.4 percent in FY 2013-14.

If achieved, the industrial growth will be strongest since the 7.8 percent notched up in FY12, it said, adding that factors like a 4 percent jump in factory output for the first two months of the fiscal and 4.6 percent growth in the core sector in the first quarter are pointing to the "beginning of a broad-based industrial recovery."

On the farm sector, it said the delayed and the weak monsoon will drag the agricultural growth down to 1.3 percent in FY15, as compared to the 4.7 percent achieved last fiscal.

However, on the concerns front, it said there will be a fiscal slippage in FY15 and the government will not be able to achieve its target of reducing the fiscal deficit to 4.1 percent.

"We believe both revenue and disinvestment targets are optimistic. A large part of non-plan expenditure is of committed nature and it is quite likely that the government will overshoot the budgeted targets," it explained.

It can be noted that the international rating agencies, including India Ratings' parent Fitch, have been watching work on the fiscal deficit front very closely and have repeatedly warned of adverse action on the country's sovereign rating because of the fiscal imprudence and the low growth.


The country has had two consecutive years of sub-5 percent growth and there are high expectations from the newly elected Narendra Modi government for a revival.

The current account deficit, controlled through massive measures on the imports front, will expand to 2.2 percent for the fiscal but financing the same will not be of much trouble due to high capital flows, it said.

On the currency front, it said the rupee will gain and should be trading at the 57-58 levels by the end of the fiscal.

On the price rise situation, it expects the government to intervene "timely and efficiently" in the agricultural commodity market and estimated consumer price inflation to be at 7.9 percent for FY15 as against the 9.5 percent year ago.


Story first published: Friday, August 8, 2014, 10:07 [IST]
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