Updated on 27th April 2015


    • Turnaround in basic and capital goods, but quick turnaround in overall industrial growth not expected due to continued weakness in intermediate and consumer goods.
    • Below normal rainfall, after crop destruction from unseasonal rain, likely to drive inflation up.
    • Oil prices on the rebound touches US$65 mark from US$45 in January, creating fresh inflationary pressures.
    • Moderate 0.25-0.50% drop in repo rate can be expected over the next 2 quarters.
    • Banks starts to reduce interest rates, but high NPA may limit the cuts.
    • Sharp appreciation of rupee to hit export growth and widen trade deficit.


Rural markets are facing considerable pressures ahead. While on one hand overall inflation has stayed low thanks to the marginal increase in MSPs, limiting the outlay on rural sector including NREGA, lower prices of agricultural commodity etc, on the other hand, these measures have severely affected the purchasing power in villages, making for low growth in rural markets. Unseasonal rain across large parts of the country and now below normal forecast for monsoon is going to further hamper the prospect of a rural turnaround. This is not only reflected in the weak rural FMCG sales growth, but also in durables -while tractor sales declined by more than 30% in the November-January period, overall two-wheeler sales declined by 1% in March with motor cycle sales dipping by 5%. The latest data from the Labour Bureau also shows that the average rural wages in ploughing-sowing-harvesting increased barely by 9% in February 2014-February 2015 period compared to 20% in the previous year. With fight against inflation continuing to hold centre stage, the means adopted may have a serious negative impact on rural demand.

The demand downturn is not limited to the rural market only. The latest Consumer Confidence survey by RBI brings out some of the hidden worries of the consumers – the one- year ahead employment and income outlook has worsened compared to the previous 3 rounds of the quarterly survey. Similarly, price level and inflation expectations also took a down turn over the previous quarter. Moreover, only around 40% of respondents expects an increase in current or future non-essential spending.

The lacklustre demand condition is also reflected in the weakness in the industrial sector. Basic goods and capital goods indicate some revival in new investments. But, with weak growth in intermediate goods (1.6%) and consumer goods (-3.7%), the results does not reflect any considerable industrial turnaround.

On the external front, oil prices have been rising albeit slowly and with the global economic slowdown, the exports are facing considerable headwind. The pressures are worse due to appreciation of Rupee against major currencies other than US$. This has resulted in decline in exports to Europe, Russia, China and a few Gulf countries. With India continuing to be a preferred destination for international investors and domestic inflationary pressure limiting the ability of RBI to cut interest rate by any significant margin, attaining export growth through depreciation is unlikely.

Overall, prospects for this year are not very bright. With agricultural growth likely to be lower, no immediate major turnaround in industrial fortune visible and exports facing headwind, the infrastructure push of the government becomes even more important from a growth perspective. Overall, the current macro-economic scenario points more towards a 7.5-8% range growth in 2015-16, only marginally higher than the advance estimates in the new GDP series for last year.