Citi sees modest pick-up in GDP growth to 7.5% this fiscal

Says despite challenges in farm and mfg sectors, recovery likely to sustain as fiscal and monetary policy are turning growth supportive

The Indian economy is likely to see a modest recovery with GDP growth expected to be 7.5 per cent in the current fiscal, says a Citigroup report.

It will improve further to 7.8 per cent in the next financial year, according to the financial services major.

It said that despite challenges in agricultural and manufacturing sectors, the recovery is likely to sustain as both fiscal and monetary policy are turning growth supportive.

"Given the subpar monsoon and renewed concerns on global growth, we expect a modest pick-up in growth to 7.5 per cent in FY16 and 7.8 per cent in FY17," said the Citigroup report.

According to official figures, the April-June quarter GDP slipped to 7 per cent from 7.5 per cent in the preceding quarter.

"Latest data trends suggest continued challenges in agri (14 per cent deficient monsoon) and manufacturing sector (PMI at 7-month low). However, with both fiscal (improving public expenditure mix) and monetary policy (cumulative 125bps easing so far) turning supportive of growth, the recovery is likely to sustain," the report said.

It further said that the seventh pay commission would boost demand, while further easing by the Central Bank and structural reforms would aid in the recovery process.

"The likely stimulus from upcoming 7th pay commission, further monetary easing of 25-50 bps coupled with structural reforms, like GST and ease of doing business are likely to aid the process of recovery," Citigroup added.

The report noted that it is likely to be a "long road to recovery" as the latest data trends suggest continued challenges in agricultural sector with 14 per cent deficient monsoon, while the manufacturing sector is also sluggish. The Nikkei India Manufacturing PMI was at a 7-month low in September.

Though the cumulative rainfall in 2015 was 14 per cent deficient as against 12 per cent shortfall last year, "the timely onset of monsoon boosted sowing in kharif season," Citigroup said, adding that "as per first advance estimate, the agriculture ministry expects 3.1 per cent growth in food grains output in kharif season".