NEW DELHI: Reserve Bank of India (RBI) has slashed the projection for output growth for 2015-16 from 7.8 per cent in April to 7.6 per cent with a downward bias to reflect the uncertainties surrounding various risks. It also revised up its inflation projection to 6 per cent by January 2016 due to monsoon risks.
The Central Statistics Office has revised downwards its estimate of India’s gross value added (GVA) at basic prices for 2014-15 by 30 basis points from the advance estimates. “Domestic economic activity remains moderate in first quarter of 2015-16.
Agricultural activity was adversely affected by unseasonal rains and hailstorms in north India during March 2015, impinging on an estimated 94 lakh hectares of area sown under the rabi crop,” RBI Governor Raghuram Rajan said while releasing the monetary policy.
Reflecting this, the third advance estimates of the Ministry of Agriculture indicate a contraction in foodgrains production by more than 5 per cent in relation to the preceding year’s level. Successive estimates have been pointing to a worsening of the situation, with the damage to crops like pulses and oilseeds — where buffer foodstocks are not available in the central pool — posing an upside risk to food inflation.
According to the RBI, merchandise export growth has weakened steadily since July 2014 and entered into contraction from January 2015 through April, with a recent shrinking of even volumes exported. The deterioration in export performance affected economies across Asia as global demand fell and the fall in commodity prices impacted terms of trade for commodity exporters.
From December 2014 onwards, merchandise import growth also turned negative, led by a sharp decline in the volume of oil imports as inventory build-up by refineries subsided. Gold imports spiked in the month of March and remained elevated in April owing to festival demand and regulatory relaxations. Notably, the volume of imports has been recording increases, despite the value decline, the RBI said.
Given these developments, the reduction in the current account deficit resulting from the sharp decline in oil prices has begun to reverse, though the size of the deficit is expected to be contained to about 1.5 per cent of GDP this year. “Net exports are, therefore, unlikely to contribute as much to growth going forward as they did in the past financial year,” the RBI said.
“Consequently growth will depend more on a strengthening of domestic final demand,” Rajan said.
While portfolio and direct foreign investment flows ere buoyant during 2014-15, with net foreign direct investment to India at $36.6 billion and net portfolio inflows at $41 billion, the year 2015-16 has begun with net portfolio outflows in the wake of a reduction in global portfolio allocations to India.
Foreign exchange reserves are around $350 billion, providing a strong second line of defence to good macroeconomic policies if external markets turn significantly volatile, it said.
