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Dec 31, 2012, 09.21 AM IST | Source: CNBC-TV18

Experts debate on growth movement in 2013

The year 2012 may have been the year with the slowest growth in a decade, with GDP likely to have clocked an average of 5.3 percent. A CNBC-TV18 poll indicates that 50 percent of the economists expect growth to have troughed in the second quarter, while 50 percent expect it to trough in the third quarter.

The year 2012 may have been the year with the slowest growth in a decade, with GDP likely to have clocked an average of 5.3 percent. A CNBC-TV18 poll indicates that 50 percent of the economists expect growth to have troughed in the second quarter, while 50 percent expect it to trough in the third quarter.

Around 50 percent of those polled see current year growth at 5.2 percent to 5.4 percent while 50 percent see it between 5.5 percent and 5.8 percent. As for next year, 80 percent of those polled see growth a good one percentage point higher between 6.2 percent and 6.5 percent; while 20 percent see it at 6 percent and below.

If growth will snake up what will inflation do that's the happiest part of the forecasts. Around 70 percent of those polled expect inflation to be at 7 percent or lower by March end. Around 30 percent see it above 7 percent in March.

As for FY14, 40 percent see inflation averaging between 6 percent and 6.5 percent; 50 percent see it averaging between 6.5-7 percent, only 10 percent see it above 7 percent in FY14. With inflation down to 6.5 percent, all those polled expect a slew of rate cuts. Around 40 percent expect repo rate to by cut by 75 bps in 2013; 40 percent see a 100 bps cut next year.

A minor, 20 percent see only a 50 bps cut on the external front all of them see the rupee stable between 53-54 by March 2013; in the remaining three quarters, 60 percent continue to see the currency stable between 52-55 to the dollar while 40 percent see a depreciation towards 57.

As for the current account deficit 50 percent believe it will be at 4 percent of GDP or higher in FY13; while 50 percent say it will be lower than 4 percent; every one sees the cad lower in 2014 by at least 40 bps as for the fiscal deficit, 20 percent see the deficit at 5.5 percent this year i.e FY13; 40 percent see it at 5.6 percent of GDP and 40 percent see it between 5.6 percent and 5.8 percent of GDP, importantly no one expects it to at the finance minister's forecast of 5.3 percent.

For the next year everyone see the deficit lower by at least half percentage point. 40 percent see it at 5 percent or lower; 40 percent see it between 5.1 percent and 5.3 percent and 20 percent see it between 5.4 percent and 5.5 percent.

The poll indicated that inflation rate and GDP rate will probably be at 6.5 percent or thereabouts in 2013. Also the two deficits, fiscal deficit and current account deficit will be about 0.5 percentage lower in FY14 than it was in FY13. To discus the implications of these developments, Saumitra Chaudhuri, member, Planning Commission, SS Mundra, executive director, Union Bank and A  Prasanna, chief economist ICICI Securities discuss their view on the topic.

Below is the edited transcript of the interview.

Q: For the past three years inflation has been a good one to two percentage points higher than the GDP growth rate. We understand from the poll is that in 2013 calendar both may converge at about 6.5 percent. What will be the macro economic implications of this development? Would that be a positive development?

Chaudhuri: Easing off of inflation is a positive development. Inflation has been extremely recalcitrant and difficult to handle especially since it has come from primary commodities in the first part of the inflationary period. We have now covered three years.

It is extremely destabilising and has been a disincentive for any economic activity whether it is consumption or investment. Inflation has also led to significant amount of monetary tightening. A relief from inflation would be a true relief. I agree that inflation seems to be coming off, if it stays around 6-6.5 percent next year then it would be positive for the economy as a whole.

Q: The fact that inflation might be below or at the same rate as GDP growth. Does it per se have any significance and separately are you also confident that inflation will be able to mellow down in FY14?

Prasanna: I am not sure numerically if inflation is below, above or at the same level as growth rate as it has any implication. In terms of investment allocation, high inflation does affect investment choices between financial assets and fiscal assets. So, from this perspective inflation moving down is good news for investment allocation.

On inflation per se, I also expect it to come down but I still see some upside risks because of administered prices in India, Budget pressures and other issues one can see some prices going up during the year. So, these are some upside risks to a sanguine view on inflation.

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READ MORE ON  inflation, econmy, growth, gdp, rate, repo, crr

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