Indian GDP at factor cost to expand by 4.7-4.9% in 2013-14-ICRA

Mild revival in GDP growth to 4.8% in Q2FY14 from 4.4% in Q1FY14, with a weaker Rupee boosting exports and a favourable monsoon benefiting agricultural output

Improved agricultural output, rural demand and healthy exports are expected to support economic growth in the remainder of 2013-14. Current rainfall and sowing trends suggest a favourable outlook for rabi crops. Moreover, higher minimum support prices (MSPs) for various crops would enhance rural disposable income and boost rural demand for sectors such as consumer durables, tractors, two-wheelers and cement in H2FY14. While the strength of the economic recovery in some major export destinations such as Europe may be milder than previously expected, the ~15% depreciation of the Rupee in FY14 would continue to benefit exports in sectors such as textiles, apparels, pharmaceuticals and software. Nevertheless, capacity constraints in some of these sectors may constrain a further pickup in growth.

Despite the Cabinet Committee on Investment (CCI) facilitating a substantial number of clearances for large projects, the pace of implementation continues to be constrained by factors such as pending clearances at the State Government level; sector-specific issues such as fuel linkages for power; as well as high leverage levels and tight liquidity of the developers. Moreover, asset quality concerns suggest Banks may be cautious in boosting lending. Weak investor confidence and the expectation of further monetary tightening suggest a low likelihood of a pickup in private sector capital expenditure in FY14. Additionally, with the Central Government's fiscal deficit crossing 84% of the budget estimate in the first seven months of this fiscal, GoI may have to curtail its capital expenditure to avoid breaching the fiscal deficit target of 4.8% of GDP, which may negatively impact growth.

ICRA expects Indian GDP at factor cost to expand by 4.7-4.9% in 2013-14, with a mild improvement in growth in H2FY14 as compared to the 4.6% growth in H1FY14.

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