“GDP estimates for FY14 are at 4.7%.  The positive news is that inventory levels have declined sharply in FY14 to 1.6% of GDP from 3.5% of GDP in FY11. Thus, a recovery in manufacturing sector as and when it happens augurs well for GDP growth pick-up. Interestingly, we are facing a similar predicament in FY15, as we faced in FY10. In FY10, just immediately after the crisis, the 8.6% growth was powered by a surge in Industry (weighted contribution at 28.3%). With the weighted average contribution of Industry at 26.1% in FY14, it is no wonder that growth has touched 4.7%.

The measly growth in FY14 raises hopes for better FY15. However, it is too early to conjecture of a significant revival in first half of FY15. Recovery will be slow and gradual. Hopes of a deceleration in inflation will crucially depend on the lowering of inflationary expectations and food prices trajectory. Our hope is that the possibility of a lower than expected rainfall, is likely to be counterbalanced by revival in manufacturing sector through domestic debottlenecking and export revival. Our estimates of potential growth in FY15 at 5.5% are closer to our projection at 5.3%, and thus expectations of a further disinflationary impetus look to be low.”

Source: Lokesh Shastri