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The Reserve Bank today said it expects economic growth to improve in the second half of this financial year on the back of expansion in the agriculture sector, exports and movement in stalled projects.
Addressing a media conference, RBI Governor Raghuram Rajan said he would stick with the earlier 5% growth projection for the full year, with minor fluctuations in the number.
"Growth in the second half will be stronger than growth in the first half. Of course, the factors that will play out are agriculture, exports and stalled projects coming back on line. We hope they will come back on line. That will help improve growth and sentiment," he said.
Rajan said it was important that the government and the RBI "be vigilant to the growth scenario."
The RBI left key policy rates unchanged in its Mid-Quarter Monetary Policy Review today. Shifting his stance from inflation management, Rajan said continuing weakness in growth was the main driver of his policy action.
Increased investments helped the economy to grow 4.8% in the July-September quarter compared with a 4.4% expansion in the first quarter.
Growth in the first half of 2013-14 stood at 4.6%. To achieve 5% growth in this financial year, the economy has to expand by 5.4% in the second half.
Rajan said subdued domestic consumption demand and a lacklustre services sector suggested continuing headwinds to growth.
"Tightening government spending in Q4 to meet budget projections will add to these headwinds. In this context, the revival of stalled investment, especially in the projects cleared by the Cabinet Committee on Investment, will be critical," Rajan said.
He said the government is committed to the path of fiscal consolidation and to implement it there could be a certain amount of expenditure contraction in the fourth quarter.
"Of course, an increase in disinvestment, greater revenue from state-owned companies will help meet the deficit target," he said.
Finance Minister P Chidambaram has said the government will not breach the red line of 4.8% of GDP targeted for the fiscal deficit in 2013-14.
The government has budgeted Rs 40,000 crore from disinvestment and has so far raised Rs 3,000 crore.
