A day after many economists pegged India’s economic growth for the fourth quarter of 2012-13 at below 5% level, rating agency Icra Limited today predicted the GDP expansion to be 5% from 4.5% in the third quarter.
Yesterday, economists cited the reason for a relatively lower GDP to a reduction in government spending. The economists included Credit Suisse Director and Chief Economist Robert Prior-Wandesforde and Nomura India chief economist Sonal Verma.
However, Icra predicted a slight improvement in the growth of services and agriculture which will reflect in the economic growth.
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Giving thumbs up to the reform measures announced by the government to ease the widening current account deficit, Icra Limited - India's leading rating agency - has forecast a marginal 0.5% decline in current account deficit (CAD) in the current fiscal year from expected five% in 2012-13. It, however, said even 0.5% lower CAD would be a high number.
It said CAD may still remain a key area of concern for the Reserve Bank of India despite a predicted fall in the figures.
"Macroeconomic and political uncertainties may result in sporadic portfolio outflows and foreign direct investment (FDI) inflows may not record a broad-based pickup until after the Parliamentary elections", the agency said.
Icra suggested a cautious approach towards monetary easing to ease down the current account deficit. "CAD is expected to remain uncomfortably large, despite the anticipated reduction in FY14. Accordingly, a cautious approach towards monetary easing is warranted", the rating agency said.
Icra expected 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 that inflation is also likely to ease down in 2013-14.
"Food inflation will go down to 6.5-7.0% in 2013-14 from around 10% in 2012-13. Moderation in prices of some industrial inputs and weakening pricing power will lead to moderate core inflation at 3.5-4% over the first half of the next financial year", said Icra Ltd.
The government is expected to announce the GDP numbers for 2012-13 on May 31, while CAD numbers for the year would come on June 28.