This 2015 Article IV Consultation highlights that India’s near-term growth outlook has improved, and the balance of risks is now more favorable, helped by increased political certainty, several positive policy actions, improved business confidence, and reduced external vulnerabilities. Growth is projected at 5.6 percent for FY 2014/15, picking up to 6.3 percent in FY 2015/16, as a result of the revival in industrial and investment activity. However, weaknesses in India’s corporate and bank balance sheets will weigh on credit growth, and fiscal restraint and a tight monetary stance will act as headwinds in the near term, offsetting the positive growth impact of the improved commodity terms of trade.
This statement contains information that has become available since the staff report was circulated to the Executive Board. This information does not alter the thrust of the staff appraisal.
1. Historical GDP figures for 2011/12–2013/14 have been revised. India’s Ministry of Statistics released (on January 30) a new series for national accounts—revising the base year from 2004/05 to 2011/12, and incorporating numerous conceptual and methodological changes consistent with the adoption of the 2008 System of National Accounts. India’s nominal GDP (at market prices) was marked down by only about 2 and 1 percent in 2011/12 and 2012/13, respectively, while nominal GDP for 2013/14 was essentially unaffected. These changes would alter only marginally key ratios (including the debt-to-GDP ratio). Consequently, upward revisions to real GDP growth in 2012/13 and 2013/14 were also made, raising growth from 4.7 to 5.1 percent and from 5 to 6.9 percent, respectively.
2. The official forecast of GDP growth for 2014/15 has also been revised. Using the new GDP at market prices series, the Ministry of Statistics released (on February 9) revised preliminary estimates of real GDP growth for 2014/15, coming in with an advanced estimate of 7.4 percent. New quarterly numbers for real GDP growth at market prices (for fiscal year 2014/15) were also released, indicating that growth in the first three quarters of the fiscal year came in at 6.5, 8.2 and 7.5 percent, respectively. Staff and the economic authorities (Reserve Bank of India and Ministry of Finance) will be guided by these new high-frequency numbers, and other series and information on the revised methodology to be released later in February, in revising 2014/15 and medium-term GDP growth forecasts.
3. The Reserve Bank of India (RBI) kept its policy repo rate unchanged at 7.75 percent on February 3, in line with market expectations. The RBI stated in its latest bi-monthly monetary policy statement that the rationale for its decision of no change to the policy rate was the absence of substantial new developments on the disinflationary process or on the fiscal outlook, since the 25 basis points cut in the policy repo rate of January 15.
4. The RBI announced a range of regulatory measures in its sixth bi-monthly monetary policy statement. In its February 3, 2015 statement, the RBI reduced the statutory liquidity ratio (SLR) of scheduled commercial banks by 50 basis points from 22 percent to 21.5 percent of their net deposit liabilities, increased the limits for foreign exchange remittances, and increased the minimum residual maturity of foreign portfolio investment in India to three years. The SLR was, in particular, reduced to provide room to banks to increase their lending to productive sectors on competitive terms to support investment and growth.
5. International reserves have increased due, in part, to continued robust capital inflows. Net portfolio investment inflows (both equity and debt) have amounted to about US$ 7 billion in 2015, of which about US$ 2 billion has occurred thus far in February 2015. International reserves have increased by about US$ 8 billion during 2015, after increasing by US$ 27 billion in 2014, and currently stand at about US$ 328 billion (an all-time high) representing about 6½ months of next year’s imports of goods and services.
6. The government undertook the largest-ever share sale by any private or public sector company in India, selling part of its shares in Coal India. During the week ending January 30, 2015, the government sold 10 percent of its stake in Coal India Limited, the largest coal miner in the world by output, raising around US$ 3.6 billion from the sale. This will help the authorities meet their 2014/15 fiscal deficit target of 4.1 percent of GDP.