RBI forecasts 5.5% growth for FY 15; but monsoons, geopolitics may play spoilsport.

KOLKATA: The Reserve Bank of India (RBI) has said that the Indian economic growth is poised for a take-off amid signs of economic reforms, fiscal consolidation and projected improvement in investments.

The central bank forecasts the gross domestic product (GDP) to grow around 5.5% in 2014-15 after two painful years of sub-5% growth, its annual report stated. "The Indian economy stands at a crossroads that could take it from aslow bumpy lane to a faster highway," RBI said, in its annual report for 2013-14. RBI's accounting year runs July to June. "With greater political stability and a supportive policy framework, investment could turn around. The economy is poised to make a shift to a higher growth trajectory."

This is in line with the projections made at the start of 2014-15 and RBI is now looking at the prospect of a sustainable 7% growth in the medium term if the government takes the reforms process forward in the areas of industry, services, international trade, labour markets, public sector management and financial markets.

Signs of improvement in mining, manufacturing, construction and trade are making a difference as these four sectors account for half the GDP. Availability of financial resources to private sector is expected to ensure a steady flow of funds to productive sectors. An improved external demand and stabilising global commodity prices are expected to support recovery, too.

"India's import bill will grow significantly slower in the next five years than it has in the last five as prices of crude oil, thermal coal and liquefied natural gas (LNG) come under pressure, mainly from a rush of supplies globally,'' said rating company Crisil. RBI said the economy could grow in the range of 5% to 6% in 2014-15 with risks broadly in balance around the central estimate of 5.5%. However, deficiency in rainfall during the 2014 monsoon season and geopolitical tensions in the Middle-East can play a spoilsport.

Stability in the foreign exchange market with softening of global crude oil prices is also a comforting factor to the government and conducive to growth. Index of Industrial Production (IIP) growth is beginning to look up while inflation on an average has been lower than in the corresponding period of the previous year. After remaining above 8% during April-May 2014, consumer price index moderated to 7.5% in June 2014 due to favourable base effect. However, it rose to 8% in July 2014 as prices of vegetables grew on the back of lack of rains till July. The disinflationary momentum that set in since December 2013 has taken inflation to a lower trajectory, broadly in line with RBI's projections. However, downside risks to growth and upside risks to inflation arise from the sub-normal monsoon and the geopolitical situation in the Middle-East.

Even if the rainfall is normal in the rest of the monsoon season, some rainfall deficiency will stay. "However, its adverse impact on growth, inflation, fiscal and trade deficits is expected to be small," RBI said.

Source : economictimes.indiatimes.com