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Thursday, January 10, 2013

India to grow at 6.7% in 2013-14: Crisil

Coimbatore: The Indian economy would grow at a higher rate of 6.7% in 2013-14 compared to the estimated growth of 5.5% for the current financial year (2012-13) due to a revival in consumption, ratings agency Crisil has said.

"A pick-up in agriculture, predicated on a normal monsoon, lower interest rates and higher government spending will support private consumption demand," Crisil said. "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% from 7.7% projected for 2012-13," it said.

"India's GDP growth in 2013-14 will be supported by the revival of private sector consumption growth aided by higher growth in agriculture, high government spending and lower interest rates," said Roopa Kudva, Managing Director and CEO, Crisil.

A normal monsoon will boost agricultural GDP growth to an above-trend rate of 3.5% in 2013-14, albeit on a lower base of 2012-13. "With the easing of inflation, RBI is expected to cut interest rates by 75-100 basis points (0.75%-1%) starting January 2013, thereby lowering retail lending rates and boosting demand in interest (rate) sensitive segments," Crisil said.

The likely increase in government spending in the form of higher expenditure on social sector schemes and rural development will be driven by the upcoming general elections in 2014. Increased welfare expenditure by the government, lower interest rates, moderation in inflation and high farm incomes (assuming a normal monsoon) will boost household spending and thereby, benefit sectors such as consumer durables, hotels and restaurants and financial services, Crisil said.

Further, improved external demand, as a result of marginal recovery of global growth, could raise India's exports, especially in the IT/ITes sector. "We, therefore, expect the services sector to remain healthy at 8% in the next fiscal," Crisil said.

"An improvement in private consumption will create demand for goods and services, which in turn will raise industrial growth to 5.4%. Although this is an improvement over the current fiscal, industrial growth will still lag its last ten-year average of 7.9%," said Dharmakirti Joshi, chief economist, Crisil.

Despite higher consumption growth, average WPI inflation is projected to be lower at 7% in 2013-14, as against 7.7% forecast for 2012-13 on back of normal monsoon, a stronger rupee, and lower crude oil prices. However, the likely upward revision of fuel prices and persistent excess demand for food articles are likely to limit the further decline in WPI inflation.

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