India’s gross domestic product (GDP) — the value of all goods and services produced in the country — is set to decelerate to 4.8% in 2013-14, lower than last year’s 5%, a RBI-sponsored survey has found with no immediate recovery signs in the economy hit by a toxic mix of industrial slowdown, weak rupee and rising prices.
Also, speedier implementation of stalled projects, vital to create jobs and multiply income, is critical to revive growth in the broader economy, RBI said in its customary policy-eve macro-economic review as it lobbed the ball back to the government.
“The median growth forecast (of professional forecasters) for 2013-14 was revised downwards to 4.8% from 5.7% in the previous round… “For supporting growth, complementary action aimed at productivity enhancement, structural reforms and quick project implementation will be needed,” RBI said in the review ahead of the second quarter policy review on Tuesday.
India has been hit by a crippling industrial deceleration as factories, squeezed by high borrowing and raw material costs, are producing less.
Can monsoon rain turn the economy around? RBI believes it can, but only just.
“A good monsoon and pick-up in exports, if sustained, could provide some momentum. At this stage, demand management requires balancing fiscal consolidation with investment support,” RBI said.
India’s agriculture output grew 2.7% during April to June this year, down from 2.9% last year; overall GDP grew at a four-year low of 4.4% in the quarter.
When rain-dependent farm output is robust, rural income and therefore spending on almost everything — television sets to gold, from personal care products to processed food — goes up. This creates demand for manufactured goods, which, in turn, helps the general economy.
For instance, rural buyers account for close to 40% of India’s total motorcycle sales. Likewise, about 40% of India’s cement demand comes from rural housing.
“With deceleration in private consumption and fall in investment, overall demand conditions remain weak,” RBI said.
“Modest improvement in growth is expected in the second half (October-March) of 2013-14 following a rebound in agriculture and an improvement in exports. However, a fuller recovery is likely to start taking shape towards the end of the fiscal year on the back of current steps to clear impediments that were stalling projects,” it said.
There was a silver lining though. External sector risks, have reduced as current account deficit is likely to moderate from the record 4.8% seen in 2012-13. “The trade balance has responded to the policy measures; exports have picked up and gold imports have declined,” RBI said.