Economic growth at 5.5-6.5% in 2013: Moody's

Indian economy is expected to pick up and grow in the range of 5.5-6.5% in 2013 even though government steps for new investments have been "relatively small in scope", Moody's said today.

Citing cautious private sector and relatively high inflation, the global rating agency also said that the country is struggling to boost investment and economic growth.

Based on its central forecast scenarios, Moody's Investors Service has estimated that Indian economy would see 5.5-6.5% growth in 2013, as against 3.9% last year. The growth is projected to improve further to 6-7% in 2014, it noted.

According to Moody's, one percentage point range in the forecast is to "avoid spurious precision" and to focus on significant changes that could potentially influence rating decisions.

"Despite the recent decline in wholesale price inflation, CPI inflation remains in double digits, which points to pricing pressures elsewhere in the economy.

"As such, while GDP growth is likely to pick up during 2013, it will probably take at least another year or two before the economy matches the pace of expansion seen during 2010 and 2011," Moody's said in a report.

The agency noted that the Current Account Deficit (CAD) remains a persistent concern for India, "as it leaves the country vulnerable to capital exodus if investors' risk appetite starts to wane".

Concerned over widening CAD mainly due to high gold imports, both the government and the Reserve Bank are taking steps to check imports. CAD touched an all-time high of 6.7% in October-December 2012 quarter.

Noting that the growth has recently fallen short of expectations in India, Moody's said that policymakers' efforts to incentivise new investment and saving have been relatively small in scope, and are unlikely to presage a pronounced increase in capital spending in the near term.

It said India (as also Brazil) is "struggling to boost investment and wider economic growth in the face of private- sector caution and relatively high inflation".

The possibility of slower-than-expected growth in key emerging markets -- China, India and Brazil -- is a serious threat to the global recovery, Moody's said.

Finance Ministry officials recently told Moody's representatives that India's growth story is credible and the government is taking steps to deal with the fiscal issues.