'Economic recovery remains tentative, infra financing a worry'

Recovery in economic activity remains tentative and narrowly focussed, while financing of infrastructure projects may be a constraint to the pace of execution next fiscal, ICRA said today.
"The recovery in Indian economic activity remains tentative and narrowly focussed in sectors such as roads, railways, power transmission and passenger vehicles.
"Notwithstanding some impending boost to consumer sentiment post revision in salaries and pensions of government employees, capacity expansion will significantly lag project announcements. Availability of budgetary outlays for financing of infrastructure may emerge as a constraint to the pace of execution in 2016-17," ICRA said in its economic update.
Capacity expansion is expected to pick up with a substantial lag as capacity utilisation improved mildly to a moderate 71.5 per cent in first quarter of current fiscal from 70.2 per cent in the same quarter previous fiscal, it said.

Despite clearances facilitated by the Cabinet Committee on Investment, the value of revived projects stood at a marginal Rs 0.1 trillion in the second quarter of 2015-16.
And decline in commodity prices and lower input costs for firms are not sufficient to revive investment plans in the absence of a pickup in demand, it added.

Though bank credit was seen picking up at 18 per cent in April-December year-on-year basis to Rs 8.2 trillion on improved transmission of monetary easing to banks' lending rates, ICRA said.
Poor monsoon weighed on rural sentiment and demand for items such as tractors, motorcycles, cement, however, overall indicators continue to point to relatively healthier urban consumption demand led by moderation in inflation, lower fuel prices.

"Contraction in merchandise exports on account of factors such as weak global demand, low prices of commodity-intensive exports and lack of competitiveness engendered by stronger rupee on an real effective exchange rate basis, remains a key drag on overall economic activity."
Lead indicators of trading activity have continued to display mixed trends as well as considerable volatility in recent months, it said.
However, implementation of the 7th Central Pay Commission would trigger a modest improvement in demand for lower ticket sized consumer durables in 2016-17, it added.