For 2015-16, CRISIL Research expects inflation to average at 5.8% supported by lower oil prices, normal monsoons, pro-active steps by the government, and better monetary and fiscal coordination. Expect RBI to reduce the repo rate by 50bps in the next fiscal and it is likely that these reductions will be frontloaded, says the report.
In February CPI inflation rose to 5.4% from 5.2% in January, driven by higher food inflation (+60 bps) while core inflation edged down for the seventh consecutive month. Despite higher food inflation, headline inflation remains in the comfortable zone. Assuming inflation remains the same in March, headline inflation for 2014-15 will stand at 6% - much lower than 9.5% in 2013-14.
However, going ahead certain risks have emerged. Untimely rains in recent days have adversely impacted Rabi crops in the north and central India. As a result, inflation might inch higher or remain close to current levels in the coming months. In addition, increase in freight charges and petrol and diesel prices might reduce the benefit from lower transport and communication inflation.
For 2015-16, we expect inflation to average at 5.8% supported by lower oil prices, normal monsoons, pro-active steps by the government, and better monetary and fiscal coordination. In addition, the recent budget is non-inflationary as it focuses on boosting supply and capacity rather than fuelling consumption. Given our outlook on inflation, we expect RBI to reduce the repo rate by 50bps in the next fiscal and it is likely that these reductions will be frontloaded.
In January, industrial production grew by 2.6% compared to an upwardly revised 3.2% in December. Sectors which dragged down growth were telephone instruments (including mobile phone and accessories), mineral index, steel structures, tractors and ship building and repairs. This month, the silver lining came from capital goods, which posted growth of 12.8% - the third consecutive month of strong uptick. However, the January reading of overall IIP data fails to suggest that a sharp uptick in industrial growth is in the making. Nevertheless, for 2014-15 we expect industry (including construction) to grow at 5.9% as per the new GDP series. Going forward, in 2015-16 we expect growth at 6.2% led by; (i) an improvement in private consumption demand as it benefits from an increase in discretionary spending, as food and fuel inflation decline, (ii) faster implementation of stalled infrastructure projects as the investment climate improves, and (iii) a pick-up in mining activity.
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