 "Indian economy to grow at a higher pace of 6% in FY14: ADB")
The ADB projected the annual economic growth of India in the current financial year (FY 2013) to be 6%, and the growth in the next financial year (FY 2014) to be 6.5%, in its annual economic publication, Asian Development Outlook 2013 (ADO 2013). ADO 2013 said that the improved global prospects, the easing inflation, and structural; reforms will push the growth rate to 6.5% in the FY 2014.
According to ADO 2013, inflation is likely to come down to 6.8%, if the diesel prices are further raised, and the supply-side bottlenecks affecting the agricultural sector are addressed. “The RBI is likely to cut the interest rates by 25 to 50 basis points this year, though we can’t predict a number, said, Abhijit Sen Gupta, an economist with the India Resident Mission of the ADB. ADO 2013 said that though the forecasts are optimistic, there are risk factors like another bad monsoon, slow reforms, and slow global economic growth.
"Supply and policy obstacles have seen growth decelerate and investment and industrial output slump, with the statistics compounded by weak global demand," said ADB Deputy Country Director Narhari Rao.
"Policymakers need to remove structural hurdles to faster growth, and while there have been some encouraging recent reforms, more is needed," he said.
The report said the next two years should see some improvement, with a normal monsoon likely to lift agriculture, and exports, industry and services expected to expand on stronger domestic and external demand.
On the rate of price rise, the ADB report said, core inflation pressures are likely to recede, aided by more regular weather conditions and easing global commodity prices, although wholesale prices will remain elevated.
India's inflation is seen at 7.2% in 2013-14, easing back to 6.8% the following year as government steps to raise diesel prices are completed.
Recent reforms like the creation of the Cabinet Committee on Investment to expedite government clearances for large projects, and cabinet approval for a land acquisition bill, are steps in the right direction, it said.
However, the report said, much more is needed if India is to go back to 8% plus growth trajectory.
This includes ending delays in environmental clearances, obtaining Parliamentary approval of the complex land acquisition bill, and improving infrastructure for fuel deliveries to power plants to end electricity shortages, it said.
The report further said the central government aims to cut its budget deficit in 2013-14 through enhanced revenue collections and reduced subsidies.
The government has targeted a fiscal deficit of 4.8% of the GDP for the current fiscal against 5.2% in 2012-13.
Cutting the fiscal deficit will help raise domestic savings and encourage private investment, the ADB said.
With the tax structure remaining largely the same, it said, the reduction in deficit would be heavily dependent on a pickup in growth and continued revisions of diesel prices.
Terming rising current account deficit (CAD) a concern, the report said reversing this trend will require removing constraints which are deterring investment and undermining exports and domestic growth.