Now Moody's, Economist project higher growth for India

Wednesday 22nd April 2015 06:26 EDT

A week after it revised its outlook on India to positive from stable, global ratings major Moody's pegged the country's growth at 7.5 per cent for 2015, while the Economist Intelligence Unit said a 7.1 per cent expansion will be sustained over the next four years.

"India's economy is on a cyclical upswing. Forward looking indicators suggest domestic demand is gathering momentum," said Faraz Syed, associate economist, Moody's Analytics. According to the ratings agency, low inflation rate has enabled the Reserve Bank of India (RBI) to cut interest rates by 50 basis points in early 2015 which has helped in easing pressure on the private sector.

"Lower rates as well as the government's infrastructure and disinvestment programmes should provide a boost to domestic-oriented industries," said Syed.

The RBI had cut its repurchase rate by 25 basis points on January 15 and on March 4. However, RBI Governor Raghuram Rajan, who conducted the first bi-monthly review of the monetary policy for the current fiscal year on April 7, decided to retain the policy rates. The RBI made it clear that it will cut interest rates further only if it sees more robust containment of prices and commercial banks lowering the cost of housing, auto and corporate loans.

"Since most banks didn't reduce their lending rates until recently, the full impact of the rate cuts will probably be felt in the second half of 2015. Thus, consumer spending likely will get a bigger boost later this year," Syed said.

Rajan has projected a 7.8 per cent growth for the current fiscal year, subject to a normal monsoon.

The Economist Intelligence Unit's (EIU) latest global forecast has pegged India's growth annual growth to clock 7.1 per cent over the next four years. It said that the Indian economy is strengthening, off the back of lower oil prices, which has eased structural problems with high inflation. "In its first full budget, for fiscal year 2015-16 (April-March), the government pledged more money for much-needed roads and railways and cut some red tape for entrepreneurs," EIU's global forecast said.

"It (government) relaxed slightly some fiscal deficit targets and increased spending on welfare. All of these moves are positive, but are no more than incremental improvements," the forecast added.

Meanwhile, Moody's analysis further suggested that the country's first quarter GDP (gross domestic product) growth will be around 7.3 per cent on a year-on-year basis.

The growth projections come soon after Moody's had revised India's sovereign ratings outlook to positive from stable. Another ratings agency Fitch had reaffirmed its stable outlook on India.

The think-tank of rich nations, the Organisation for Economic Cooperation and Development (OECD), also endorsed high growth prospects for India.

Similarly, the Asian Development Bank (ADB) has also projected the country's growth at 7.8 per cent in 2015-16 and at 8.2 per cent in 2016-17.

On April 14, the World Bank had forecast India's growth accelerating to 8 per cent in the next fiscal.

The ratings agency further noted the government's disinvestment plans as being a significant instrument in raising funds for infrastructure creation.

"Funds raised from disinvestments will be spent on developing India's ailing infrastructure. If revenues fall short, we expect the government to cut expenditure to meet its 3.9 per cent deficit target for 2015-2016," Syed said.

"Lower government spending is a downside risk to our forecast over the coming year," Syed added.

For 2015-16 fiscal beginning April, the government has budgeted to collect Rs 695 billion through public sector disinvestment.

Recently, approximately 5 per cent of the Rural Electrification Corp. was sold in early April. The share issue stood oversubscribed by 553 per cent. Moody's said that the India's current account deficit (CAD) is expected to remain steady in 2015 thanks to lower oil and gold prices. India's CAD came down to $8.2 billion - or 1.6 per cent of the gross domestic product - in the third quarter ended December 2014.

With the steep fall in oil prices the subsidy burden has been projected to come down from a high of Rs.1,390 billion for 2013-14 to around Rs 800 billion in 2014-15.

EIU's forecast gave a similar view on benefit of lower crude oil prices for the Indian economy and the Indian currency. "Oil will continue to exert an influence over emerging-market currencies: those of large producers such as Russia have suffered significant depreciations, while those of importers such as India have shown much more resilience," the EIU's forecast added.

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