OECD projects India's growth rate at 4.9%

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More stability expected after new government

Projecting India’s growth at 4.9 per cent in 2014, the 34-member OECD on Tuesday said the economy is expected to gather momentum with cabinet committee on investment fast-tracking stalled projects and political uncertainty declining after the May elections. It projected India’s growth higher at 5.9 per cent in 2015.

In the world economic outlook released in Paris on Tuesday, OECD expected global economy to grow less than expected this year at 3.4 per cent from its 3.6 per cent projections in November last. It cut forecast for China and the US It expected global growth to be 3.9 per cent in 2015.

Elaborating on India, the world economic outlook said investment should recover as projects cleared by the cabinet committee on investment are implemented.

The rupee depreciation over the summer of 2013 and firming external demand will underpin export growth, while the rise in rural incomes and the decline in inflation will boost consumption, OECD said.

However, fiscal consolidation and supply bottlenecks, coupled with high non-performing loans and corporate leverage, will weigh on the recovery.

Implementing the RBI panel’s proposed inflation targeting framework will help anchor price expectations and improve business sentiment and consumer confidence. The fiscal deficit has narrowed, but more and better consolidation is needed. This would require implementing pending tax reforms and changing the spending mix away from energy subsidies towards better-targeted social and infrastructure investment.

Reforming labour regulations and improving the education systems would also promote growth and help create quality jobs. The recent rebound in exports as external markets recovered and the rupee depreciated has sustained growth. After contracting in real terms in 2013, investment was still sluggish early in 2014, partly reflecting high corporate leverage in some sectors.

Lending to the non-food sector has remained sluggish. While the manufacturing sector has been a drag on the economy, forward-looking indicators, such as new industry orders, point to some recovery. Financial and business services remain buoyant and inflation is decelerating.

Consumer price inflation has fallen rapidly, largely driven by the adjustment in food prices. The impact of several one-off factors, including the rupee depreciation in the summer 2013 and hikes in regulated prices, is also fading away.

Still, core inflation remains sticky and stands above the level of most other emerging economies.

krsudhaman

@mydigitalfc.com

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