PMEAC revises FY2014 growth estimates - Angel Broking

The PMEAC on September 13, 2013 pegged real GDP growth for FY2014 at 5.3% higher than 5% in FY2013. It expects agriculture, industry and services growth at 4.8%, 2.7% and 6.6% in FY2014 as against 1.9%, 2.1% and 7.1% respectively in the previous year. The Council's growth estimates have been revised lower from 6.4% indicated in April 2013. The reasons it states for lowering the forecast are impact of currency related disruptions and corporate results remaining stressed. However these estimates continue to remain higher than market expectations of growth ranging between 4.5-5% during the fiscal year and lower than FY2013.

The three main reasons it cites for a higher growth rate as compared to FY2013 are 1) reflection of full impact of various measures taken over the last six months, 2) performance of key infrastructure sectors that lie in the public domain such as coal, power, roads and railways and 3) Continuous efforts being made to remove the bottlenecks in the implementation of projects.

Domestic savings rate is projected at 31% of GDP as against the estimated 30.2% of GDP in FY2013. Investment rate is projected to be lower at 34.7% of GDP in FY2014 as against the estimated 35% in FY2013.

It estimates WPI inflation by end March 2014 to be around 5.5 percent as against the average of 7.4% in FY2013 and 5.7% at end March 2013. But we believe that upside risks to inflation exist from the full pass-through impact of currency depreciation and deregulating of administered fuels.

The Current Account Deficit is projected at US$70bn (3.8% of GDP) in FY2014 against an estimated US$88.2bn (4.8% of GDP) in FY2013. Merchandise trade deficit is projected at US$185bn (10.1% of GDP) in FY2014 against an estimated US$195.7bn (10.6% of the GDP) in FY2013. It also points to the likelihood of CAD coming in lower than US$70bn if recent trends in exports and imports are maintained through the year. However a note of caution is warranted despite the improving CAD since it expects slower capital flows in the economy. Net Capital inflows are projected at US$61.4 bn (3.4% of GDP) in FY2014 against an estimated US$89.4bn in FY2013. This would entail a draw-down of US$8.6bn from the country's foreign exchange reserves. It is reiterates that for India, the short-term problem is of financing the large CAD, while the medium term issue is to compress CAD to a more sustainable level of around 2.5% of GDP and ensure price stability.

On the fiscal situation it notes that containing fiscal deficit within the budgeted estimate could be a challenge. The fiscal deficit during the first four months of the current financial year has already reached 62.8%, and expenditure on major subsidies 51.3%, of the budgetary provision for the full financial year. Discretionary expenditure budgeted may need to be compressed, and subsidies restructured, in the remaining months of the financial year in a growth friendly manner to limit fiscal slippages.

It concurs that the current stance of monetary policy has to continue until stability in the rupee is achieved. Thereafter, if the current trend in the moderation of wholesale price inflation continues, which is in fact expected, the monetary authorities can switch to a policy of easing. However it notes that the time frame for this is very difficult to specify.

Source : Equity Bulls

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