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Indian economy likely to grow at 4.9 percent in FY14: India Ratings

15 Jan 2014 Evaluate

Amid rising concerns over the deteriorating economic fundamentals of the country, the rating agency India Ratings has lowered its Indian economic growth forecast to 4.9 percent in the current fiscal. However, the agency added that the growth is likely to improve significantly to 5.6 percent in FY'15 on the back of partial recovery in the industrial and services sector growth, and an uptick in investments owing to the project clearances by the Cabinet Committee on Investment (CCI). Indian economic growth slowed down to decade low at 5 percent in the FY'13.

Further, India Ratings stated that Indian economy’s growth outlook is looking significantly better now as compared to mid-2013 when the country was struggling with current account and fiscal deficit, falling rupee and high and stubborn inflation. The factors like rising exports, better-than-expected monsoons, swift policy as well as project clearance actions by the government and deft currency management by the RBI have improved business sentiments in the country. The ratings agency has estimated the economic growth at 5.6 percent in FY'15 with agriculture sector expanding at 3 percent, industry at 4.1 percent and services at 6.9 percent.

Referring to the inflation in the country, the ratings agency has expected pressure on food prices to ease in FY'15 on the back of normal monsoons and projected average WPI-based inflation to decline to 5.5 percent in FY'15, from around 5.9 percent in current fiscal. Furthermore, the agency expects that with the expected moderation in inflation in FY'15, the RBI's policy stance to gradually shift towards monetary easing. Regarding the country’s fiscal deficit, Indian rating has stressed that Indian fiscal deficit will narrow to 4.5 percent in FY'15 as the new government formed, will make efforts to adhere to fiscal consolidation. The agency expects fiscal deficit to remain closer to the budgeted level of 4.8 percent in current fiscal.

Indian Ratings further added that Indian exports are likely to continue to grow in FY'15 on the back of economic recovery in the US and EU nations. Restrictions on gold imports and stable oil prices would restrict import growth and restrict Current Account Deficit to 2.2 per cent of GDP in FY'15. Regarding the exchange rate, India Ratings projected the rupee to settle at around 56-57 to a US dollar by the end of March 2015.

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