Prospects about the forthcoming general elections may lift business confidence and will be the trigger for the economy, which has stabilised after downside risks eased with the rupee and current account issues under control.
"The economy has stabilised in recent quarters, though GDP growth remains well below potential. Downside risks have receded. The rupee is less vulnerable to the US Fed tapering than it was in 2013. The economy will slowly improve across 2014 but not hit potential until well into 2015," the agency said today in a report titled, 'India Outlook: Steady Growth, Lower Risk.'
"GDP growth will be in the 5 to 5.5 per cent range through 2014, before heading north of 6 per cent in 2015...The upturn will be led initially by exports, which started to lift from mid-2013, and then later in 2014, by an upturn in the investment cycle," analyst Glenn Levine said in the report.
Levine said, "There is a growing list of reasons to believe that the economy has started to turn the corner, albeit slowly, after 30 months of sub-par growth. Economic growth has stabilised and downside risks have fallen."
Exports have already started to pick up, helping to narrow the CAD, it said, adding that "on the home front, fewer downside risks, a more competent central bank governor, and the prospect of better government after the May elections have boosted business and investor confidence."
Basing its optimism on better-than-expected third-quarter growth (Q2 of FY14), the report said the economy should steadily improve in the coming quarters as downside risks have started to recede.