India’s economy will grow at 7.9% next fiscal from 7.6% expected in the current one, if supported by a normal monsoon. So far, the economy’s modest recovery has been shaped by good luck on crude oil and commodities, and a supportive policy environment. While this is expected to continue, India cannot afford to be third-time unlucky with rains. We have revised downwards our growth forecast for next fiscal from 8.1% earlier due to intensifying global headwinds,” says Crisil research in a report on the outlook for fiscal 2017.
According to it “Both the International Monetary Fund and the World Bank have already lowered their global growth forecasts for 2016 by 20 and 40 basis points (bps), respectively. Next fiscal, we expect consumer price inflation (CPI) to stay soft at 5% and unchanged from fiscal 2016. This is assuming a normal monsoon, lesser decline in global oil and commodity prices, and sticky services sector-led components of consumer prices”.
As for current account deficit (CAD), Crisils expect mild upward pressure because imports are likely increase on a revival in investments and consumption. Exports, on the other hand, are expected to stay in the bog. The upshot is that we see CAD inching up to 1.6% of GDP next fiscal from an expected 1.3% in the current fiscal.
The rupee, it believes, “will be supported by improving growth-inflation mix, sufficient foreign exchange reserves, and low inflation and CAD. We also expect the government to improve the ease of doing business even more, and pass important reforms such as the Goods and Services Tax (GST), which can improve investor appetite. We expect the rupee to settle around 65 per US$ by March 31, 2017”.
Indeed, the next fiscal will be closely watched for more reforms and implementation of executive action already announced. It will also be a year to spruce up bank balance sheets, reduce leverage in infrastructure and other asset-heavy sectors, and pull electricity distribution companies out of their financial quagmire. And expeditious legislation of GST and bankruptcy code will materially raise India’s potential-growth rate.