Stanchart revises FY16 GDP growth forecast to 7.7% from 6.3%

The statistical boost to GDP is likely to continue in the next financial year as well, as the Indian economy is expected to clock 7.7 per cent growth under the new series, higher than 6.3 per cent projected under the older series, says a report by Standard Chartered.
According to the global financial services major, strong GDP prints in 2013-14 and 2014-15 are driven more by "statistical factors" after India released a new GDP series on January 30 rather than a pick-up on the ground.
"We revise up our FY16 GDP growth forecast to 7.7 per cent year-on-year under the new series from 6.3 per cent under the old series, but expect policy makers to rely more on high-frequency data to assess the health of the economy in the near term," Standard Chartered Economist Anubhuti Sahay said in a research note.

The Central Statistics Office (CSO) estimates real GDP growth (with 2011-12 as the new base) at 7.4 per cent in 2014-15 as against 6.9 per cent in 2013-14.
"However, we believe these strong results need to be interpreted with caution, as activity indicators and sentiment surveys underline significant slack in the economy," the report added.
The revised CPI inflation trajectory, otherhigh-frequency data and the upcoming budget are likely to steer monetary policy decisions in the immediate term, but we believe that high GDP growth rates will eventually reduce the need for rate cuts in the coming years.

The RBI will therefore need to reassess its potential growth estimates (6.0-6.5 per cent) in view of the new GDP data and assess any slack in the economy.

The Reserve Bank on its February 3 policy review left interest rate unchanged saying there was no substantial development on inflation or fiscal fronts to warrant a fresh reduction.
This stance follows a surprise rate cut by RBI on January 15 to tackle disinflationary pressure.
Accordingly, the RBI left the short-term lending rate or repo rate at 7.75 per cent and the cash balance requirement on the lenders or CRR at 4 per cent.
Also, RBI slashed Statutory Liquidity Ratio (SLR), a percentage of funds banks have to necessarily park with RBI, by 50 basis points to 21.5 per cent.