India's gross domestic product (GDP) is likely to grow to 6.5% in 2015-16 against 5.6% in 2014-15, according to India Ratings & Research.
The agency is of the view that a number of announcements made in the 2014-15 budget to address the structural issues plaguing industrial and infrastructure sector could gather pace in 2015-16 besides few more being announced in the 2015-16 budget.
"Improvement in the industrial growth performance and declining inflation will have positive impact on industrial recovery due to increased consumption demand," Devendra Kumar Pant, chief economist and senior director, India Ratings and Research, said at a press meet here on Thursday.The Rating agency further believes that the government's push for 'Make in India' and improving the 'ease of doing business' will aid manufacturing and industrial growth.
India Ratings expects both wholesale price index (WPI) and consumer price index (CPI) based inflation to moderate to 2.8% and 6%, respectively, in 2015-16.
In response to declining inflation and inflationary expectations, the Reserve Bank of India (RBI) cut the repo rate by 25 basis points on January 15.
The agency also expects RBI to cut the repo rate by another 75 basis points by in the next financial year ended March 2016.The moderation in inflation is based on the assumption of a normal rainfall in 2015, a moderate hike in procurement price, soft global commodity prices and near stable rupee-dollar exchange rate.
Declining crude prices is a windfall gain for the Indian economy. It has improved both the inflation and fiscal outlook.
As the bond market had already factored in the expected rate cut, the average 10-year G-sec yield fell to 7.93% in December 2014 from 8.75% in August 2014.
India Ratings expects it to fall in the range of 7.1%-7.2% by March 2016.
The rating agency also believes that the current account deficit is expected to widen to $46.5 billion (2.2% of the GDP) from $41.9 billion in 2014-15 (2.1% of GDP).
Import of crude oil is likely to remain moderate due to fall in global crude oil prices.
Crude oil plunged more than 45% last calendar year and it is trading below around $46 in the international markets.