India’s economic growth is poised to inch up 4.9 per cent in 2014 and is expected to gain momentum with a decline in “political uncertainty” after the general elections, although rising bad loans would weigh on recovery, Paris-based think-tank OECD said on Tuesday.
The estimate by the Organisation for Economic Cooperation and Development (OECD) for 2014 is higher than 4.5 per cent growth projected for 2013. India’s GDP is expected to pick up further momentum and grow 5.9 per cent in 2015, according to OECD’s latest economic outlook report. The Indian economy has slowed and growth plummeted to a decade-low of 4.5 per cent in 2012-13.
“Growth is expected to gather momentum. Investment should recover as projects cleared by the Cabinet Committee on Investment are implemented and political uncertainty declines after the May 2014 general elections,” OECD said. Counting for the nine-phase lok Sabha polls is scheduled on May 16.
According to the grouping of 34 countries, the rupee’s depreciation over the summer of 2013 and firming external demand would underpin export growth, while the rise in rural incomes and the decline in inflation would boost consumption.
“However, fiscal consolidation and supply bottlenecks, coupled with still high non-performing loans and corporate leverage, will weigh on the recovery,” it added. Non-performing assets, or bad loans, of state-owned banks rose 28.5 per cent to Rs 2.36 lakh crore in September last year from Rs 1.83 lakh crore in March 2013. “Implementing the proposed inflation targeting framework will help anchor price expectations and improve business sentiment and consumer confidence,” the report said.
Retail inflation measured in terms of the Consumer Price Index increased to 8.31 per cent in March from 8.03 per cent in February. According to OECD, even though the fiscal deficit has narrowed, more has to be done 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 and training systems would also promote growth and help create better quality jobs,” it noted.
Finance Minister P Chidambaram has exuded confidence that India would be able to contain its fiscal deficit at 4.6 per cent of GDP in the year ended March 2014. Official figures for this period are still awaited.
Meanwhile, average growth in BRIICS nations (Brazil, Russia, India, Indonesia, China and South Africa) is projected to be 5.3 per cent this year. China would again have the fastest growth among these countries, with rates just below 7.5 per cent in 2014 and 2015, OECD said.