FICCI cuts India’s Economic Outlook to 4.8%, Predicts 25 bps Rate Hike

Unlike IMF India’s premier chamber of industry, FICCI has cut India’s economic outlook to 4.8% from its earlier estimate of 5% growth in GDP. This is quite in contrast to IMF estimate, which few days back, backed up India’s estimate to be more than 50 basis points to 4.4% from its earlier estimate of less than 4%. On one side FICCI outlook survey indicates some moderation in economic activity in spite of a clear improvement in growth parameters during Q3 to 5% from 4.8% clocked during last quarter, while on the other hand IMF seemed quite optimistic for country’s growth due to decent monsoon and robust growth in exports.  FICCI economists’ panel predicted a policy rate hike of 25 basis points by RBI in the forthcoming monetary policy review. 

In its estimate FICCI depicted that economists’ outlook for industrial sector remained weak. This is due to persistent weak demand and subdued investments. It has been predicted that Index of Industrial Production (IIP) will grow by 1.5% in FY14, down by 1.7% projection in the earlier survey. It has also raised the alarm for the inflation demon raising its head again. The Survey also predicted that due to rising food and fuel prices, inflation would remain at 6.5%, up by 50 basis points from the earlier prediction.

On the positive side FICCI stated that the situation has improved considerably and CAD to GDP ratio will touch as low as 1.9% during Q3 as against 4.5% predicted earlier. This certainly is a big positive for the economy as well as the government, which is toiling hard to control CAD. For a full year period CAD will be estimated to come down to 3% in comparison to the target of 3.8% set by PMEAC. This clearly shows that FM’s steps are working and industry has full confidence in it. 

FICCI, while asserting to carry forward this impetus and to keep CAD within manageable levels feels exports need to grow at double digits for the coming months, and also felt that RBI would go for a marginal rate hike of 25 basis points on 28 January. Participating economists have foreseen this policy rate hike to contain the inflation. Chamber also predicted that value of rupee would remain below Rs. 65 per USD till March in spite of tapering announced by US Federal Reserve.