Mild recovery in GDP growth to 5.4% in 2013: Barclays

Growth recovery in India is likely to be "slow" and the country is expected to clock a GDP growth rate of 5.4% in 2013, says global brokerage firm Barclays.

 

"We forecast only a mild recovery in GDP growth to 5.4% in 2013, before expecting a stronger recovery to take hold in 2014," Barclays said in a research note.

 

India's GDP growth plunged to a decade low of 5% in 2012-13, while, before the financial meltdown in 2008, it was growing at over 8%.

 

Though there has been "no material improvement" in the first quarter of 2013, activity is expected to gain some momentum in the second half of this year as effects of monetary easing slowly filter through.

 

"While activity should gain some momentum in the second half of 2013 as the bulk of spending cuts pass and the effects of monetary easing slowly filter through, the capex cycle could stay weak ahead of the impending national elections (due in the first half of 2014)," it added.

 

On interest rates the global brokerage firm further said that the RBI will have to ease monetary policy further, as WPI inflation has fallen to less than 5%, from 7.5% last year, and this has created room for more monetary easing from the Reserve Bank of India.

 

"We expect the repo rate to reach 6.5% by year- end, which implies another 75bp of easing over the remainder of the year," Barclays said.

 

In the mid-quarter policy review on June 17, the RBI kept key policy rates unchanged in view of high food inflation, the declining value of rupee and global uncertainty, disappointing India Inc as well as retail borrowers.

 

The repo rate, at which RBI lends to banks, has been retained at 7.25%, while the Cash Reserve Ratio (CRR) will continue to be 4%.

 

On the current account deficit, Barclays said it is expected to stay wide at 3.9% of GDP and the government may need to explore more policy initiatives to facilitate capital inflows.