Industrial Growth to be Marginally Higher: Ind-Ra expects the industrial gross value added to grow 6.9% in 2QFY16 compared with 6.5% in 1QFY16. It grew at 7.6% in 2QFY15. Although all four segments namely mining, manufacturing, electricity, gas & water supply and construction are expected to contribute to the industrial growth, it will be led by the manufacturing sector.

Manufacturing sector IIP grew 4.6% in 2QFY16. This is the highest quarterly growth since 1QFY12 (7.7%). Even use based classification is showing an encouraging trend. Except non-durables, all other use-based segments showed positive growth in 2QFY16. Particularly noteworthy is the growth in consumer durables (11.8%) and capital goods (13.8%).

Services Growth to Remain Steady: Ind-Ra expects the services sector to grow 9.4% 2QFY16 (1QFY16: 8.9%; 2QFY15: 10.4%) and will be driven by ‘trade, hotels and transport & communication' and 'financial, insurance, real estate and professional services' segments.

Consumption and Investment Demand to be on Course: Ind-Ra expects private final consumption expenditure to grow 7.8% in 2QFY16 (1QFY16: 7.4%; 2QFY15: 7.1%). A reduction in inflation in combination with a decline in the bank lending rates is helping consumers to finally loosen their purse. Even investment demand as reflected in the growth of capital goods is showing some traction. Ind-Ra therefore expects the gross fixed capital formation to grow 6.9% in 2QFY16 (1QFY16: 4.9%; 2QFY15: 3.8%).

Exports and Imports Growth to Disappoint: In 2QFY16, Ind-Ra expects the exports and imports to contract 6.9% (1QFY16: negative 6.5%; 2QFY15: negative 2.0%) and 5.8% (1QFY16: negative 5.4%; 2QFY15: 1.1%), respectively. Lack of global demand is chiefly responsible for the contraction in merchandise exports.

Ind-Ra believes that it would be difficult to maintain merchandise exports in FY16 even at a level similar to FY15 due to the fragile global economic recovery. On the other hand, a sharp decline in commodity prices coupled with tepid domestic investment demand conditions has affected imports. However, imports excluding crude, petroleum products, gold, silver and precious/semiprecious stones are still showing positive growth.

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The author is Principal Economist & Director - Public Finance, India Ratings & Research