‘Late monsoon not to revive GDP’

Pegging India’s GDP growth in the current fiscal at 5.6 per cent, Bank of America Merrill Lynch has said the revival in monsoons is unlikely to improve the growth forecast.

“The upside risk of 50 basis points to our 0.5 per cent agricultural growth projection on account of revival of rains is effectively neutralised by a 50 basis points downside risk to our 4.7 per cent industrial growth forecast with the RBI delaying monetary easing,” the brokerage said in a report adding that it is retaining the growth projection at 5.6 per cent.

The report by Indranil Sengupta, India Economist at Bank of America Merrill Lynch further said that the RBI is likely to go for a 25 basis point CRR reduction in the September 17 policy.

In June, the country received 31 per cent deficient rains than normal while July saw a monsoon deficiency of 13 per cent.

Buoyed by surplus rains in August, the south-west monsoon touched the near normal level with the rainfall deficit narrowing down to 9 per cent of the seasonal average.

In a report, the brokerage further said that the RBI is likely to go for a 25 basis points CRR cut in the September 17 policy. The recent revival in monsoon is likely to better the winter crop prospects.

However, at the same time a poor Autumn harvest is likely to pull down growth to 5 per cent levels in the second and third quarters. “Revival of rains should save Rabi crop but much of the damage done to Kharif crop may not be recouped,” the report said.

Regarding inflation, the report said it is likely to stabilise around 7 per cent levels. While headline inflation in July moderated to 6.87 per cent from 7.25 per cent in the previous month, upside risks to inflation still persist.

The report also observed that increase in oil prices is likely to get deferred till the Gujarat elections