'CAD, inflation should ease in FY14'

A day after some senior economists pegged India's economic growth for the fourth quarter of 2012-13 at below five per cent, rating agency Icra on Tuesday predicted the rate of gross domestic product (GDP) expansion to rise to five per cent from 4.5 per cent in the third quarter.

It predicted a slight improvement in the growth of services and agriculture, reflecting in economic growth.

"Lead indicators of the services sector suggest a small uptick in growth in the fourth quarter," the agency said. Approving the measures announced to ease the widening current account deficit, Icra has forecast a marginal 0.5 per cent decline in the current account deficit (CAD) this financial year from an expected five per cent of GDP in 2012-13. Adding, though, that even a 0.5 per cent lower CAD would be a high number.

It said the CAD was likely to remain a key area of concern for the Reserve Bank of India. And, predicted that "macroeconomic and political uncertainties" could result in sporadic portfolio outflows, with foreign direct investment possibly not recording a broad rise until after next year's parliamentary elections.

Icra suggested a cautious approach towards monetary easing for reducing the CAD, which it noted was "expected to remain uncomfortably large, despite the anticipated reduction in FY14.

Accordingly, a cautious approach towards monetary easing is warranted". It said it expected a lower CAD due to "the expectation that incentives announced by the government would provide a limited boost to non-oil, non-jewellery merchandise exports and lower crude oil prices would dampen growth of oil imports".

Further, owing to a favourable monsoon forecast, the agency said inflation was also likely to ease down. "Food inflation will go down to 6.5-7 per cent in 2013-14 from around 10 per cent in 2012-13. Moderation in prices of some industrial inputs and weakening pricing power will lead to moderate core inflation at 3.5-4 per cent over the first half of the next financial year," it said.

The government is expected to announce the GDP numbers for 2012-13 on Friday. The year's CAD numbers would come on June 28.