RBI survey pegs current year economic growth at 7.8%

The Indian economy is expected to grow at a slower rate of 7.8 per cent in the current fiscal, against the earlier forecast of 7.9 per cent, says a survey sponsored by the Reserve Bank of India.

''Forecasters expect real gross value added (GVA) at basic price  to increase by 7.8 per cent in 2015-16,'' RBI said, adding, ''In 2016-17, GVA is expected to increase by 8.2 per cent, led by growth in 'services' by 10.1 per cent.''

Real GVA growth at basic prices is expected to improve gradually from 7.5 per cent in Q1: 2015-16 to 8.4 per cent in Q1:2016-17, the survey noted.

In terms of gross value added (GVA), a new concept introduced by the Central Statistics Office (CSO) to measure economic activity, the Indian economy expanded by 7.2 per cent in 2014-15 compared to 6.6 per cent in the previous fiscal.

Forecasters projected growth in 'agriculture & allied activities' and 'services' at 2.2 per cent and 10.0 per cent, respectively. 'Industry' growth forecast has been placed at 6.2 per cent.

In terms of subjective probabilities assigned to growth projections, forecasters ascribed maximum 55 per cent chance that GVA growth in 2015-16 will be in the range of 7.5-7.9 per cent. For the year 2016-17, GVA growth in 8.0-8.4 per cent range is the most probable outcome.

Private final consumption expenditure at current prices is expected to increase by 12.7 per cent in 2015-16 and further by 13.1 per cent in 2016-17.

Gross saving rate is projected at 30.8 per cent of Gross National Disposable Income (GNDI) in 2015-16 and 31.0 per cent of GNDI in 2016-17.

Forecasters expect Gross Fixed Capital Formation rate at 28.8 per cent of GDP in 2015-16, which is expected to improve to 29.4 per cent of GDP in 2016-17.

Both money supply and bank credit growth expectations declined for 2015-16 in this round. While money supply (M3) is expected to increase by 12.5 per cent in 2015-16 and further by 13.5 per cent in 2016-17, bank credit is expected to expand by 13.5 per cent in 2015-16 and further by 14.5 per cent in 2016-17.

The central government's gross fiscal deficit (GFD) is projected at 3.9 per cent of GDP in 2015-16 and is expected to moderate to 3.5 per cent of GDP in 2016-17. The combined GFD of central and state governments is projected at 6.5 per cent of GDP in 2015-16 and is expected to improve to 6.2 per cent of GDP in 2016-17.

Merchandise exports growth is forecast at 1.2 per cent in 2015-16, a 220 basis points downward revision from 3.4 per cent in the previous round. Growth of merchandise exports is expected to improve to 6.2 per cent in 2016-17.

Current account deficit is projected at 1.0 per cent and 1.3 per cent (of GDP) in 2015-16 and 2016-17, respectively. Capital account surplus is expected at 3.4 per cent of GDP in 2015-16.

CPI (combined) headline inflation forecast has been cut between 20 bps and 40 bps in the current round from the previous round. Headline inflation is now expected to increase from 5.0 per cent in Q1:2015-16 to 5.5 per cent in Q1:2016-17.

The forecasters expect core CPI (defined as excluding food and fuel) to remain above 5.0 per cent from Q3:2015-16.

Wholesale price index (WPI) inflation is expected to remain in the negative zone till Q2 of 2015-16 and is likely to increase to 3.0 per cent in Q1 of 2016-17.

Forecasters assigned maximum probability of 70 per cent (based on average of individual forecasts) that CPI headline inflation will be in the 5.0-5.9 per cent range in March 2016. Based on this probability distribution, the implicit CPI inflation rate for March 2016 is expected at 5.6 per cent. Similarly, for March 2017, the forecasters assigned maximum probability of 52 per cent that CPI inflation will be in the range of 5.0-5.9 per cent.

The Indian rupee is expected to depreciate gradually against the US dollar from 64.00 per dollar in Q1 of 2015-16 to 66.00 per dollar in Q1 of 2016-17.

Over the next five to 10 years, forecasters expect India's real GVP growth to average at 8.0 per cent and 8.25 per cent, respectively. The long-term growth expectations have remained unchanged from the previous round.

The average CPI inflation forecast for both, the next five and ten years is expected at 5.0 per cent.