Ind-Ra lowers GDP growth forecast to 7.7% from 7.9%

Many analysts are gung-ho over impact of the monsoon predictions on the overall economy, but not India Ratings (Ind-Ra) since it feels industry would drag down economic expansion. It scaled down its projections for economic growth rate to 7.7 per cent for FY17 from earlier 7.9 per cent.

"Although prospects for agriculture have improved after the announcement of an above-normal monsoon by the India Meteorological Department, the unsatisfactory progress on the industrial front is proving to be a drag on gross domestic product (GDP) growth," Ind-Ra said.

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With an above-normal monsoon, the agricultural gross value added (GVA) is expected to recover and grow at 2.8 per cent in FY17, compared with 1.1 per cent in FY16.

The meteorological department had predicted the rains to be 106 per cent of the long period average, which means excess rains.

Ind-Ra expects the industrial GVA to grow 7.2 per cent in FY17, 0.4 percentage points lower than its earlier forecast. This also means the growth of industrial GVA in FY17 will now be lower than FY16.

Notwithstanding the various announcements made by the present government during the three successive Budgets or otherwise, the growth momentum has yet not picked up, the rating agency said.

This is evident from the index of industrial production (IIP) data. IIP in FY16 till February grew by just 2.6 per cent. Ind-Ra expected investment to grow 7.9 per cent in FY17, driven by government expenditure. However, private sector investment is still weak.

In fact, capacity utilisation in several manufacturing sectors has not shown any significant improvement for about eight years now and fluctuated in the range of 81.9 per cent and 69.4 per cent since the first quarter of 2009.

Ind-Ra believes though campaigns such as Make in India, Digital India, Startup India, Standup India and Ease of Doing Business, etc. have caught the attention of investors, it will take a while before they translate into action on the ground.

Though the rating agency assessed that the target to bring down the Centre's fiscal deficit to 3.5 per cent of GDP in FY17 from 3.9 per cent in the previous one would be met. However, either capital expenditure has to be cut or revenue would see surge from unexpected quarters to meet the target.