Indian Economy Is Likely to Grow at 6.3% Next Year

PTI cited the UK based bank RBS as saying that the Indian economy is likely to grow at 6.3% next year largely due to favorable base effect, while inflation is expected to drop to a comfortable 5.4% level in FY14.

RBS Research said that “Growth should accelerate to 6.3% from 4.8% 2012 due to favorable base effect, particularly in the industrial sector.”

It said that inflation will trend down next year on the back of weak growth and relatively stable commodity prices.

It added that “We do expect a discernible deceleration in inflation as weak growth and relatively stable commodity prices should mitigate inflation pressures. For FY-14, we expect inflation to average 5.4% compared with 7.6% this fiscal.”

Though it is optimistic about higher growth rate, the report warned that ingredients are still missing which will pave the way for a durable recovery with sluggish momentum in both consumption and investment.

It said that “At this stage, various indicators, ranging from non food credit to auto sales, are still showing marked weakness, presumably an outcome of slowing income growth and persistently high inflation,” adding that investment is likely to remain weak at least till H1 of FY-14.

On the policy front, the RBI said that the recent reforms are inadequate for turning around the investment cycle and policy measures in the area of domestic resource allocation such as mining and land acquisition are required.

The report took note of rising non performing asset in banking system and said it may constrain lending.

On monetary policy, the RBS added that a cumulative easing of 125 basis points between January, 2013 and March 2014 was likely. It is likely to be concentrated in the latter part of the year to coincide with the reduction in the twin deficits and improvement in deposit growth.