“India enters 2016 on the cusp of a cyclical growth recovery, with inflation under control and its economy benefitting from lower commodity prices,” Moody’s associate managing director Atsi Sheth said at a conference here.
With Baa3 positive rating, the country will be among the fastest growing economies this year if inflation is reined in and corporate profits rise.
The agency’s Indian affiliate ICRA Ltd. expects consumption to increase from pay revision to central government’s employees and pensioners, upturn in agriculture pick-up in rural demand.
“We believe these advantages will yield growth acceleration once corporate and bank balance sheets are repaired and private sector remains competitive,” Sheth said at the day-long session on ‘Financing India’s Growth’, organised by Moody’s and ICRA.
Though the federal government is facing opposition in introducing the Goods and Services Tax (GST) from April 1, it has initiated measures to spur investments in infrastructure, allow greater foreign direct investment (FDI) and implement inflation targeting.
“Inflation and corporate profit trends in 2016 will offer clues on these policy efforts creating conditions for sustainable growth over the next three-four years,” Sheth asserted.
According to official data released, the annual retail inflation climbed to 5.61 percent in December from 5.41 percent in November.
As corporate profit taxes are a major source of state revenue, the agency hoped stronger profits from India Inc. would support the government’s fiscal consolidation efforts.
“We believe the lagged impact of reforms, pay revision for government employees and pensioners and a cyclical upturn in agriculture and rural demand will provide a modest boost to economic activity in 2016,” ICRA senior economist Aditi Nayar said at the outlook conference.
A normal monsoon in 2016 after two consecutive years of poor rainfall will boost agricultural output, restore purchasing power to the farm sector and generate an up-tick in rural demand.
ICRA believes private investment will be constrained by high levels of corporate groups, weak asset quality of state-run banks and structural issues plaguing sectors such as steel and power generation.
The government’s capital outlay and expenditure is likely to moderate this year to absorb the pay revision burden and reduce fiscal deficit to 2.5 percent in the ensuing fiscal year (2016-17).