The improvement in gross domestic product (GDP) growth in 1QFY15 at 5.7% (1QFY14: 4.7%) was in line with India Ratings & Research's (Ind-Ra) expectations (5.6%). This affirms that the economy has bottomed out. However, Ind-Ra continues to be cautiously optimistic about the recovery gaining strength in the near term. While lower-than-average monsoon will weigh on agricultural growth prospect this fiscal, the Union Budget FY15's attempt to address structural issues impacting agriculture and reviving investment in manufacturing/infrastructure will aid growth.
The favourable monsoon in 2013 contributed significantly to the agricultural growth in FY14. Also, due to its spill over effect, agriculture growth was pushed to 3.8% in 1QFY15 (1QFY14: 4.0%). A large part of FY14 rabi crop was harvested in 1QFY15. While rice and wheat grew 15.0% and 2.6% yoy, respectively, in 1QFY15, coarse cereals and pulses registered a growth of 11.2% and 6.2%. Oil seeds production grew 3.0% yoy. Due to below-than-normal monsoon so far, Ind-Ra expects the agricultural growth to remain tepid in the remaining three quarters of the current fiscal.
Industrial output grew 4.2% yoy in 1QFY15 compared with a contraction of 0.4% in 1QFY14, mainly on the return of mining and manufacturing growth to the positive territory. While the lifting of iron ore mining ban in Karnataka and Goa by the Supreme Court and stiff coal production target appear to be gradually turning around the fortune of the mining sector, the manufacturing sector appear to have benefited from election-related expenditure, excise duty cuts for the auto sector and the revival of exports growth. Electricity once again performed well and grew 10.2% yoy in 1QFY15. Even construction grew by 4.2% in 1QFY15 from 1.1% a year ago.