OECD slashes India's growth forecast to 5.3% for 2013

Prime Minister Manmohan Singh, who is on a three-day visit to Japan, had said yesterday that he is hopeful of a growth rate of 6% in 2012-13

The Organisation for Economic Cooperation and Development (OECD) on Wednesday lowered its earlier projection of Gross Domestic Product (GDP) growth on India from 5.9 per cent to 5.3 per cent in 2013.

“In India, annual GDP growth is expected to strengthen gradually, to around 5.3 percent in 2013,” OECD said in its latest Economic Outlook. In November last year, OECD had pegged India's growth at 5.9 per cent in 2013.

Prime Minister Manmohan Singh, who is on a three-day visit to Japan, had said yesterday that he is hopeful of a growth rate of 6 per cent in 2012-13. “We expect that growth in 2013-14 will be much better than in the previous year, hopefully around 6 per cent or so. We will do even better in 2014-15,” he had said in Tokyo.

India's economy grew at a decade low of five per cent in 2012-13. OECD takes growth on a calendar year basis. OECD pegged India's growth at a higher 6.4 per cent in 2014, which is in fact a pace of GDP expansion projected by the Prime Minister's Economic Advisory Council (PMEAC) for 2012-13.

“Growth should gradually recover in 2013 as efforts to speed up the approval of large investment projects and the partial deregulation of foreign direct investment take effect,” said OECD in its twice-yearly Economic Outlook.

Among the major emerging market economies, a more hesitant pickup in growth is seen to take place in India, it said.

OECD predicted higher growth in 2014 due to efforts by the government to speed up the approval of large investment projects. OECD also said growth will improve in 2014, provided monetary conditions are eased following the depreciation of the rupee. However, it added a caveat that a large Current Account Deficit may make it difficult for the Reserve Bank of India to cut interest rates significantly.

However, it cautioned India that structural bottlenecks could further constrain investment and growth potential.

Terming the headline consumer price inflation as “stubbornly high”, it predicted it to fall to 8.4 per cent for 2013, which could further decline to 6.9 per cent in the next year. After four years, consumer prices inflation fell to single digit at 9.39 per cent in April this year.

“The headline price inflation remains stubbornly high, in part reflecting administered price increases on fuel products and food price inflation, but underlying (non-food, non-energy) price inflation seems now to be easing and should fade further as spare capacity rises.”

Pushing for fiscal consolidation efforts such as the highly-debated and stalled Goods and Service Tax -- which the prime minister yesterday said would rollout only after next year's general election -- OECD said India's fiscal deficit might contract to 6.5 per cent in 2014.

“Policy implementation remains a challenge. Fiscal consolidation efforts should focus on raising more tax revenue in a less distortive way,” added OECD.  It further suggested steps such as increasing the effectiveness of infrastructure investment and better targeting subsidies so as to boost inclusive growth.