Fourth quarter GDP figures due this week will show the economy expanding at around 4.8% y/y, roughly the same pace as the first three quarters of 2013 but well below the economy's potential growth rate of 6.5% to 7%. Most sectors of the economy remain weak. Mining and manufacturing have been soft throughout 2013, consumer demand is soft, and even the domestically focused service industries slowed. Business investment has been particularly weak in 2013 as confidence remains low, demand has been tepid, and borrowing costs have lately been lifted. The government, meanwhile, has shifted its spending priorities towards cash handouts in the lead-up to this year's elections, offering a modest boost to near-term growth but probably at the expense of public investment. The export sector improved through the second half of 2013, helped by the cheaper rupee and better global demand, but this will not be enough to drag the Indian economy forward.
There is little on the horizon to lift the economy in 2014. India's export basket is centered around low-value-added commodities rather than manufactured goods, and the economy is unlikely to leverage much off the better global economy. Business confidence is low and the government budget is just about all gone. The May election offers the chance for better governance, especially if the business-friendly Narendra Modi becomes prime minister, but it will be a long road back for the Indian economy.
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