Economy to grow 7.4-7.6% in FY16; rate cut hopes high: ICRA

A better-than-expected monsoon and sowing turnout in June have raised hopes of further rate cut by the Reserve Bank, which is likely to help economy grow at 7.4-7.6 percent in FY16, ratings agency ICRA said on Thursday. "In ICRA's view, the better-than-expected monsoon and sowing turnout in June 2015 have increased the probability of a repo rate cut during the third quarter of 2015-16, as long as external developments do not result in excessive forex volatility," ICRA said in a statement. Following bouts of rainfall during pre-monsoon period, the surplus monsoon rainfall in June has encouraged early sowing of crops and quelled fears that had arisen when the India Meteorological Department forecast a deficient monsoon for 2015, it said. As of June 26, the area sown under kharif crops was 23 percent larger than the year-ago period. "Nevertheless, only around one-fourth of the total area covered under kharif planting in 2014 was sown by the end of June 2015. Accordingly, rainfall dynamics in the remainder of the monsoon season would continue to impact the sowing pattern and eventual crop yields," said Aditi Nayar, Senior Economist at ICRA Ltd. Taking into account the drag related to the weak rabi harvest in the first quarter of 2015-16, as well as lingering uncertainty regarding the ultimate turnout of the kharif harvest, ICRA expects the agricultural sector to record a marginal growth in 2015-16. An improvement in rural sentiments and consumption activity unlikely to set in until second half of 2015-16. However, the recent improvement in growth recorded by the Index of Industrial Production, core sector industries, and various services sector indicators related to air traffic and cargo handled at ports are encouraging, said the ratings firm. "Such factors would support a mild uptick in Indian GDP growth to 7.4-7.6 percent in 2015-16 from 7.3 percent in 2014-15," it said. It said would keep the food inflation in check in the near term with modest rise in support prices for various crops and a favourable base effect in some month. "ICRA expects CPI inflation to print in a range of 4-6 percent over the remainder of 2015, and average CPI inflation to decline below 5.5 percent in 2015 from 6.6 percent in 2014, assuming that crude oil prices remain relatively stable around current levels." It also said that the ongoing Greece crisis and rate hikes by the US Federal Reserve may impact foreign exchange rates, however, the Indian rupee may only have limited vulnerability within the set of emerging market currencies.