In-Ra moderately raises growth projections, cautions against slow investment

Says RBI has less space to cut rate as food inflation was rising

India Ratings and Research (Ind-Ra) has revised its gross domestic product growth forecast upwards to 7.8 per cent from 7.7 per cent for 2016-17, but cautioned against slow investment recovery.
The economy expanded 7.6 per cent in the previous financial year. Ind-Ra said the Reserve Bank of India had less leeway to cut the policy rate due to an upswing in food inflation.
The rating agency said the upward revision in growth forecast was prompted by the progress of monsoon and the sowing of kharif crops. With the exception of east and northeast, rainfall has been more than long period average.

With a favourable monsoon so far, Ind-Ra expected rural demand to recover in the current financial year. This, coupled with urban demand aided by the Seventh Central Pay Commission pay-out, would give a fillip to the consumption demand.
Ind-Ra said consumption demand would grow at 8.4 per cent in FY17. However, industrial growth at 7.2 per cent in FY17 would still be lower than the 7.4 per cent witnessed in FY16.
The key factor that is holding the acceleration of industrial growth is investment recovery, it said.

This despite the government taking several initiatives. For example, to encourage manufacturing activity, there has been a concerted focus on improving the ease of doing business through programmes such as Make in India and Start Up India. Similarly, to address the power sector woes, it has introduced the Ujwal DISCOM Assurance Yojana scheme and to address the woes of other sectors such as metals, mining, road and oil & gas, it has introduced debt restructuring schemes. However, all this has failed to rekindle the economy so far.

Another factor holding up investments was low capacity utilisation rates in a number of manufacturing sectors due to both tepid domestic demand and global overcapacity in sectors such as steel, tyres, etc, India Ratings said. 
Ind-Ra expected the wholesale and retail inflation to come in at 3.3 per cent and 5.0 per cent, respectively, in FY17.