Global rating agency Moody’s today said India’s economic growth remains weak and there is little chance of recovery next year.

“Complicated taxes and regulations, weak infrastructure, and a weak central government weigh on confidence and demand. This will turn around eventually, but not in 2014, keeping GDP growth below potential,” Moody’s said in a report.

The May elections open possibility of better governance, it said.

Monetary policy over the past three years has been at best ineffective and at worst counterproductive, but this is changing under the new central bank head, Moody’s said.

The RBI Governor, Raghuram Rajan has made lower inflation the central bank’s primary goal, meaning further rate hikes are likely in the near term, it added.

Rajan, who delivered two repo rate hikes of 0.25 per cent each in as many policy reviews since he took over on September 4, had mentioned that he considered fighting inflation as the central bank’s “key responsibility.”

The RBI is expected to raise repo rate once again tomorrow by 0.25 per cent in its bid to tame inflation.

The Wholesale Price Index inflation in November climbed to a 14-month high of 7.52 per cent as prices of food items such as onions and potatoes surged. Consumer price inflation touched a nine-month high of 11.24 per cent last month.

India’s current account deficit has narrowed, for example, which should mute the impact of Fed policy on the rupee. Moody’s expect less financial volatility in 2014, but this outlook is uncertain.

Financial shocks are by definition unforeseen, and even if the source is unknown, some volatility should be anticipated given the parlous state of global recovery, it said.

(This article was published on December 17, 2013)
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