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The deceleration in India’s economic growth appears to be bottoming out and the GDP is likely to grow by 4.7 per cent in 2013, said Capital Economics Ltd in a commentary on the country’s latest quarterly growth.
GDP growth
Growth accelerated to 4.8 per cent year-on-year in Q3 of this fiscal from more than a four-year low of 4.4 per cent in Q2.
“This was fractionally higher than our forecast of 4.7 per cent year-on-year,” said the consultancy from its Singapore office yesterday.
The manufacturing sector returned to growth, but its 1.0 per cent year-on-year increase in output last quarter was still pretty tepid. There were strong outturns from agriculture and, in particular, services, it said.
The expenditure-side data was not consistent with the headline GDP figures, but it points to a pick-up in investment and exports last quarter alongside continued weakness in consumption.
“Looking ahead, we believe that India’s road to recovery will be slow and bumpy,” Capital Economics said.
The monthly data suggest that the momentum of the recovery was not particularly strong.
Industrial production
For example, industrial production accelerated in July, then slowed in August before recovering only some of the lost ground in September, it said.
High consumer and wholesale price inflation would keep household and corporate budgets under pressure. In addition, the central bank’s hawkish posture means that monetary policy would not provide support anytime soon, it added.
Investment activity was likely to stay subdued as the government’s efforts so far have not had any visible success in reinvigorating the appetite for new projects or in clearing the project bottlenecks, it pointed out.
Budget deficit
Finally, with the budget deficit already at 76 per cent (April-September) of the full-year target, the room for expansionary fiscal policy in the remainder of FY2013-14 (which ends in March) will be limited.
“Overall, we think that the recovery will be relatively subdued. We forecast GDP growth of 4.7 per cent and 5.0 per cent for 2013 and 2014, respectively,” said Miguel Chanco, Asia Economist at Capital Economics in Singapore.
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