Monsoon revival won't improve GDP forecast: BofA Merill Lynch

The recent revival in monsoon has pulled down the rainfall deficit significantly but is unlikely to improve the GDP growth forecast for this fiscal, which is likely to be around 5.6 per cent, says a report.

According to a research report by Bank of America Merrill Lynch, despite better rains the growth forecast for this fiscal is likely to be around 5.6 percent. "The upside risk of 50bp to our 0.5 percent agricultural growth projection, on account of revival of rains, is effectively neutralised by a 50bp downside risk to our 4.7 percent industrial growth forecast, with the RBI delaying monetary easing," the report said adding that it is retaining the FY'13 growth forecast at 5.6 percent.

In June, the country received 31 percent deficient rains than normal while July saw a monsoon deficiency of 13 percent and riding on surplus August rains, the south-west monsoon touched the near normal level with the rainfall deficit narrowing down to 9 percent of the seasonal average.


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

It added that unless lending rate cuts come off by another 50bp, FY13 growth will find it difficult to do our modest 5.6 percent, let alone the RBI's 6.5 percent.

The recent revival in monsoon is likely to better the winter crop prospects and this could lead to 6.5 percent GDP growth in the March quarter on the back of base effects and lending rate cuts.

But at the same time, a poor autumn harvest will likely pull growth down to 5 percent levels in the September and December quarters.

Revival of rains should save Rabi crop but much of the damage done to Kharif crop may not be recouped, the report said.

Inflation is likely to stabilise around 7 percent levels. The August inflation levels which is scheduled to come on Thursday is likely to be 7 percent, the report said adding that oil price hikes are likely to get deferred till the winter Gujarat polls, the report said.


Updated Date: Dec 20, 2014 12:46 PM

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