India's growth recovery to remain modest at 7.5% in FY16: Citigroup

Says country's ability to withstand sub-par monsoon has been improving steadily

India's economic growth recovery is likely to stay modest at 7.5%, while average consumer price index (CPI) would be around 5% in the current fiscal, a Citigroup report says.

According to the global financial services major, the country's ability to withstand sub-par monsoon has been improving steadily on better irrigation, rising yield and pro-active food management policies.

It said that though the rising yield per hectare is likely to support agri growth, the downside risks to growth could come from poor reservoir storage and its impact on Rabi crops and weak rural demand.

"Overall, we expect growth recovery to remain modest at 7.5% in FY16 from 7.3% last year," Anurag Jha, economist at Citigroup said in a research note.

India's GDP growth rate slipped to 7% in the April-June quarter of 2015-16, from 7.5% in the preceding quarter.

While a sub-par monsoon could potentially stoke price rise and/or price rise expectations, the risks on key food grains appear contained due to soft global prices, moderate MSP hike, large food stocks and stable rural wages, it said adding risks remain on pulses, oilseeds front and veggies.

"On balance we expect inflationary risks from monsoon to be transitory amid low commodity prices and subdued demand. We maintain our view of average CPI at 5% in FY16 and expect further 25 bps easing in policy rates," Citigroup added.

The brokerage expects August CPI likely at 3.3%.

RBI, which has lowered the benchmark rate by a combined 75 basis points so far this year in three instalments, will hold its next bi-monthly monetary policy meet on September 29.