A week after it revised its outlook on India to ‘positive’ from ‘stable’, international credit rating major Moody’s pegged India’s growth at 7.5 percent for 2015.
“India’s economy is on a cyclical upswing. Forward looking indicators suggest domestic demand is gathering momentum,” said Faraz Syed, associate economist, Moody’s Analytics.
According to the ratings agency, low inflation rate has enabled the Reserve Bank of India (RBI) to cut interest rates by 50 basis points in early 2015 which has helped in easing pressure on the private sector.
“Lower rates as well as the government’s infrastructure and disinvestment programs should provide a boost to domestic-oriented industries,” said Syed.
The RBI had cut its repurchase rate by 25 basis points on January 15 and on March 4.
However, RBI Governor Raghuram Rajan, who conducted the first bi-monthly review of the monetary policy for the current fiscal year on April 7, decided to retain the policy rates.
The RBI made it clear that it will cut interest rates further only if it sees more robust containment of prices and commercial banks lowering the cost of housing, auto and corporate loans.
Rajan has projected a 7.8 percent growth for the current fiscal year, subject to a normal monsoon — over which the RBI was worried — as also an inflation rate of 5.8 percent by the end of the year, after easing to around 4 percent by August.
Syed further said that the rating agency’s analysis suggests that the country’s first quarter GDP (gross domestic product) growth will be around 7.3 percent on a year-on-year basis.
The growth projections come soon after Moody’s had revised India’s sovereign ratings outlook to 'positive' from 'stable'. Another ratings agency, Fitch, had reaffirmed its stable outlook on India.
The think-tank of rich nations, the Organisation for Economic Cooperation and Development (OECD), also endorsed high growth prospects for India.
Similarly, the Asian Development Bank (ADB) has also projected the country’s growth at 7.8 percent in 2015-16 and at 8.2 percent in 2016-17.
On April 14, the World Bank had forecast India’s growth accelerating to 8 percent in the next fiscal.
On the disinvestment front, it said the government has begun selling public sets as it plans to raise Rs 70,000 crore in fiscal 2015—2016.
“Approximately 5 per cent of the Rural Electrification Corp, a state—owned power company, was sold in early April. Strong investor demand for the electricity company suggests that the government should have few problems selling its other assets,” it said.
Moody’s Analytics is of the view that “India’s state—owned companies are notoriously inefficient, with significant bureaucracy and endemic corruption. Asset sales can make companies more productive and should ease the supply bottlenecks choking the economy.”
Funds raised from disinvestments will be spent on developing India’s ailing infrastructure.
“If revenues fall short, we expect the government to cut expenditure to meet its 3.9 per cent deficit target for 2015—2016. Lower government spending is a downside risk to our forecast over the coming year,” it added.
