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The Reserve Bank expects economic growth of between 5 and 6% in the current financial year even as uncertainty over the monsoon clouds the forecast for agriculture.
"Contingent upon the desired inflation outcome, the April projection of real GDP growth from 4.7% in 2013-14 to a range of 5 to 6% in 2014-15 is retained with risks evenly balanced around the central estimate of 5.5%," the Reserve Bank of India said in its Second Bi-Monthly Monetary Policy Statement for this financial year.
India's economic growth stayed below 5% for the second year in a row at 4.7% in 2013-14, mainly due to a decline in manufacturing and mining output. Growth remained subdued at 4.6% in the fourth quarter of last year.
The RBI said lead indicators point to continuing sluggishness in domestic economic activity in the first quarter of 2014-15.
The ongoing contraction in production of consumer durables and capital goods, coupled with moderation in corporate sales and non-oil non-gold imports, is indicative of continuing weakness in both consumption and investment demand, it said.
The forecast for agriculture is clouded by the meteorological department's forecast of a delay in the onset of the south-west monsoon with a 60% chance of the occurrence of El Nino, it said.
The outlook for the agricultural sector is contingent upon the timely arrival and spread of the monsoon, it said, adding that the easing of domestic supply bottlenecks and progress in the implementation of stalled projects should brighten the prospects for both manufacturing and services.
"The resumption of export growth is a positive development and as world trade gathers momentum, the prospects for exports should improve further," it said.
The decisive election result, together with improved sentiment should, however, create a conducive environment for comprehensive policy actions and a revival in aggregate demand as well as a gradual recovery of growth during the course of the year, the RBI said.
