CRISIL Research, India‘s largest independent and integrated research house, predicts that India‘s GDP will grow at a higher rate of 6.7 per cent in 2013-14 in comparison to 5.5 per cent estimated for the current fiscal due to a revival in consumption.
CRISIL Research, India’s largest independent and integrated research house, predicts that India’s GDP will grow at a higher rate of 6.7 per cent in 2013-14 in comparison to 5.5 per cent estimated for the current fiscal due to a revival in consumption. A pick-up in agriculture, predicated on a normal monsoon, lower interest rates and higher government spending will support private consumption demand. The improved agricultural output, along with a stronger rupee and lower crude oil prices will also help in reducing Wholesale Price Inflation (WPI) to around 7 per cent from 7.7 per cent projected for 2012-13.
With advanced economies expected to record only a slight improvement in growth and depleted domestic investment pipeline, India’s GDP growth in 2013-14 will be dependent on the revival of private consumption growth. The latter would be aided by higher growth in agriculture (assuming normal monsoons), pre-election welfare spending by the government and lower interest rates. Higher private consumption growth will improve capacity utilisation in the economy rather than create new capacities. India’s macroeconomic outlook for 2013-14 presented here will be reviewed in early March 2013, after the Union Budget 2013-14 in February-end.
Uncertain global economic prospects do not bode well for India’s exports and will limit external stimulus to its economy. India’s growth prospects in 2013-14 will, therefore, be largely shaped by domestic factors. An improvement in private consumption growth would be critical to revive GDP growth in 2013-14. Higher agriculture income - driven by normal monsoons, pre-election welfare spending by the government and lower interest rates will be key drivers of private consumption in 2013-14. Improvement in growth, driven by higher consumption growth will therefore come from higher capacity utilisation rather than capacity creation. This will help the economy inch closer to its potential growth rate of 7.0 per cent (the Reserve Bank of India’s estimate) and narrow the output gap in 2013-14. We do not expect a strong upturn in investment growth in 2013-14 since the investment pipeline has been impaired. New project pipeline will be created in 2013-14 if the private investment climate turns favourable and consumption growth picks up as forecast. Passage of policy reforms such as Land Acquisition Bill and National Investment Board as well as resolution of mining related issues will lead to higher investments and strengthen the growth momentum in the following fiscal (2014-15).
Overall, India’s GDP growth should pick-up to 6.7 per cent in 2013-14, from 5.5 per cent projected for 2012-13. Normal monsoons will boost agricultural GDP growth to an above trend rate of 3.5 per cent in 2013-14, also gaining from a lower base in 2012-13. Further, this will have a positive spillover effect on growth in the industry and services sectors. Monsoons (June-September rains) are critical for agricultural growth in India, given that over 50 per cent of the cultivated area is non-irrigated. CRISIL Research forecasts that delayed and non-uniform monsoons in 2012 will lower growth in agricultural GDP growth to 0.6 per cent in 2012-13, compared to an annual trend rate of around 3 per cent.
In 2012-13, the industrial sector has been plagued by a slowdown – both in investment and consumption - driven by a policy logjam. The industry has been particularly hit by disruptions to mining output for most part of the current fiscal. The manufacturing sector has been adversely impacted by declining private consumption, corporate investment as well as export demand. In 2013-14, however, we foresee a revival in industrial growth to 5.4 per cent from 3.2 per cent, in the first half of 2012-13, due to growth in private consumption and modest recovery in exports. However, despite this recovery, the projected industrial growth will still remain below its 20-year average of 6.9 per cent and 10-year average of 7.9 per cent.
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