India Ratings raises FY15 GDP forecast

NEW DELHI: In possibly the first upgrade after the new government took charge, India Ratings raised its FY15 growth estimate marginally, citing an improved industrial growth forecast.

The rating agency raised India's growth forecast to 5.7 per cent from 5.6 per cent estimated initially, but said the government may slip on the fiscal deficit target of 4.1 per cent of GDP for the year to March.

"Growth will be boosted by the budget's attempt to address structural issues impacting manufacturing, infrastructure, savings and housing," India Ratings said in a note, adding that the negative impact of the below-average monsoon on agriculture will be offset by the industrial sector.

The ratings agency said further that a policy push was needed for sustained, non-inflationary, high growth. It said a manufacturing revival will lead the industrial recovery, pegging FY15 industrial growth at 5.1 per cent, a percentage point higher than the initially estimated 4.1 per cent.

Industrial growth, as measured by the index of industrial production (IIP), accelerated to a 13-month high of 4.7 per cent in May while the core sector index was up 7.3 per cent in June from a year ago, the highest since September 2013.

"The index of industrial production (IIP) grew 4.0 per cent over April-May FY15 indicating the bottoming out of industrial growth. It was after a gap of 32 months that IIP growth in two consecutive months was in excess of 3.4 per cent. Farm sector growth is forecast to slow down sharply to 1.3 per cent from 4.7 per cent in FY14," the ratings agency said.

However, it was doubtful about the government achieving its fiscal deficit target. "We believe both revenue and disinvestment targets are optimistic. A large part of nonplan expenditure is of committed nature and it is quite likely that the government will overshoot the budgeted targets," DK Pant and Sunil Kumar Sinha said in the note.

Most experts have said that government's revenue assumptions in the budget aren't likely to be met and that could weigh on the fiscal deficit target. India Ratings said the current account deficit will widen to 2.2 per cent of GDP from 1.7 per cent in FY14 but its financing will not be an issue.

It said the rupee will gain to 57-58 to the dollar by the end of the fiscal.