Icra expects mild uptick in economy at 7.4% in 2015-16

According to a report, growth of gross value added at basic prices will remain steady at 7.2% in 2015-16

Domestic ratings firm Icra expects India's economy to expand with a mild uptick to 7.4% in current fiscal.

"Icra expects GDP growth to record a mild uptick to 7.4% in 2015-16 from 7.3% in 2014-15, and growth of GVA (gross value added) at basic prices would remain steady at 7.2% in 2015-16," it said in a report release.

Higher government capital spending, as well as efforts to facilitate clearances and simplify approvals have contributed to a pick-up in investment activity, although the recovery is yet to widen beyond select sectors, it said.

Icra said moderation in inflation, upward revision in minimum wages and transmission of monetary easing are expected to buffer urban consumption demand in the ongoing fiscal.

However, the uncertain outlook for rabi crops is likely to draw out the prevailing weakness in rural sentiments, it said.

"Mixed trends in domestic consumption, availability of cheaper imports and continuing contraction of merchandise exports would prevent a sizeable improvement in capacity utilisation in the current year," as per the report.

Moreover, high leverage levels of various corporate groups and weak asset quality of the banking system continue to constrain the pace of the economic recovery, it added.

Further, it said the revision in salaries and pensions of central government employees post the implementation of the recommendations of the Seventh Central Pay Commission (SCPC) would spur demand in the coming fiscal.

Additionally, several state governments may implement pay hikes over the course of 2016-17, which would provide further impetus to consumption activity, it added.

"Absorbing the fiscal impact of the SCPC's recommendations is likely to pose a challenge to the government's target of reducing its fiscal deficit from 3.9% of GDP in 2015-16 to 3.5% of GDP in 2016-17," it said.

It would necessitate a combination of revenue augmentation measures and expenditure re-balancing, Icra said.

It added that to some extent, higher disposable incomes of government employees and pensioners would boost consumer spending and therefore the tax revenues of the government.

Overall, Icra expects a shift in the nature of government spending stimulus from an investment-led growth in 2015-16 to a consumption-led growth in 2016-17, it said.