State of the Economy Seminar

NCAER presented its Quarterly Review of the Economy at this seminar held at NCAER. The review covered the performance of the economy in the last quarter of 2014-15 and presented forecast for 2015-16.

NCAER’s annual model predicts that GDP at market price, 2011-12 prices will grow at 7.8 per cent in 2015-16, according to this report release by NCAER. The WPI Energy assumption is crucial to this prediction. The baseline assumes that WPI Energy will fall by five per cent. However, if WPI Energy is assumed to fall by two per cent, GDP will grow at 7.7 per cent and if it is assumed to fall by ten per cent, GDP is expected to grow at 8.6 per cent.

The overall macroeconomic picture at the beginning of the new fiscal year is like the Curate’s egg – good in parts. There are unmistakable signs of recovery, especially in industrial production, where the year-on-year growth at 2.8% is well above the previous year’s decline of 0.1%. But the recovery is still too tepid given both our need and our potential. Add to this the doubts on the agriculture front on account of uncertainties regarding the impact of El Nino on the South-West monsoon and the somewhat uncertain global recovery and the outlook for the current fiscal is one of cautious optimism.

• The growth prospects for agriculture in 2015-16 depend very much on the actual performance of monsoon. The India Meteorological Department released its first official forecast for the southwest monsoon in April 2015. It predicted that rainfall is likely to be 93 per cent of the Long Period Average with a model error of ± 5 per cent. The likely date of monsoon’s arrival is expected to be June 1, which suggests timely arrival.
• The outlook for the industry and services sector is mixed. The industry sector is likely to gain from government initiatives like Make in India, skill development, FDI reforms, unblocking of various stalled projects etc. Specific industries like the IT-BPM (Information Technology-Business Processing Management industry) may provide the much needed fillip to the services sector.
• World Trade volume is likely to improve with differences in outlook for advance economies and emerging market and developing economies. India may benefit with increase in world growth. Given that growth in Asia, where most of our merchandise trade is directed, is weak, merchandise trade prospects appear muted for India. On the other hand, services trade has a positive outlook, with improvement in outlook for advanced economies. Overall current account deficit is predicted to remain sustainable, well under two per cent.
• Inflation outlook is muted due to dampened oil prices, which are predicted to remain low for the current fiscal. However, if there is deficient monsoon again in the current fiscal, food inflation may be affected.

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