Despite favourable monsoon brightening the scope of agriculture performance, Indian economy will grow at 4.9 per cent year-on-year in FY'14, similar to 5 per cent growth in FY'13, according to India Ratings & Research.

“While economic growth in FY'14 is likely to be similar to the FY'13 levels, current account may improve considerably. This will strengthen rupee, which India Ratings expects to stabilise around 59-61 per dollar by FYE14,” Devendra Kumar Pant, Chief Economist and Head - Public Finance, India Ratings, said.

Higher exports, farm growth

Bolstered by agriculture and exports, the ratings agency expects economic growth to improve from Q3FY'14.

Three consecutive months of double-digit export growth and healthy agriculture performance due to 6 per cent above normal rainfall in 2013 would increase the demand for industrial goods and services, India Ratings said in a report.

Industrial, services sector growth

Also, it expects the industrial and services sector growth performance in FY'14 is likely to be lower than FY13.

“Slower growth in the industrial sector and rigid expenditure are likely to result in a slippage from the FY'14 (budget) fiscal deficit (4.8 per cent of GDP) to 5.2 per cent. However, fiscal deficit control by cutting planned expenditure will not be favourable for the economy in medium- to long-run. Despite the slower growth and fiscal slippage, India Ratings does not expect consolidated debt (centre and states) to be unsustainable,” the report said.

Revival in demand

It further said that while the domestic demand is likely to revive from Q3FY'14, the recovery will remain fragile so long as investment demand does not revive.

Also, sorting issues such as the Land Acquisition Bill, environment/forest clearances and other policy or economic initiatives at the earliest would be crucial for reviving the investment demand in the economy.

Inflation, interest rates

India Ratings expects average inflation in FY'14 to be lower than that in FY13, but outside the Reserve Bank of India’s (RBI) comfort zone. The 10-year G-sec yield rate may settle between 8.1 per cent and 8.3 per cent by FYE14.

“India Ratings expects monetary conditions to remain tight and another 25-50 bps hike in repo rate in the remaining part of FY'14. However, over the next few quarters, India Ratings expects RBI to reduce the spread between marginal standing facility and repo rate to the normal 100bps and undertake more liquidity infusion measures to correct the inverted yield curve,” Sunil Kumar Sinha, Director - Public Finance of India Ratings, said.

beena.parmar@thehindu.co.in

(This article was published on October 23, 2013)
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