Indian economy to grow 3.4% in FY14: OECD

The Indian economy is expected to improve marginally in the current financial year, with gross domestic product (GDP) at market prices projected to expand by 3.4 per cent, from 3.3 per cent in the previous financial year, the Organisation for Economic Co-operation and Development (OECD) said on Tuesday.

"The country's economic activity is expected to recover gradually as the rupee depreciation supports exports, infrastructure projects cleared by the Cabinet Committee on Investment come on stream and political uncertainty declines after the general election due in 2014," OECD said.

Paris-based OECD, a grouping of mostly developed nations, has pegged India's GDP growth at market prices to be 5.1 per cent in 2014-15 and rise to 5.7 per cent in 2015-16.

India calculates GDP at constant prices which grew at five per cent in financial year 2012-13, the lowest in a decade. In the current financial year ending March 2014, Finance Minister P Chidambaram expects the economy to grow by five-5.5 per cent.

According to OECD, the rupee depreciation is putting pressures on inflation, public finances, companies and banks with high external debt.

"Supply constraints will continue to restrain growth, adding to inflationary pressures and the current account deficit," it added.

Meanwhile, OECD welcomed India's new monetary policy framework that puts more weight on inflation as a policy anchor. However, it said containing inflation pressures also requires reducing the fiscal deficit and dealing with supply constraints that limit growth. "The new Land Acquisition Law may promote investment, but the new Food Act will be fiscally costly... Priority should now be given to cutting energy subsidies, better targeting household transfers, implementing pending tax reforms, improving infrastructure and reforming the labour market," it said.

OECD projects world economy to grow 2.7 per cent this year before accelerating to 3.6 per cent in 2014.