India's economic growth is likely to rise to 7.7% in calender year 2013, but growth rate through much of this year is likely to remain subdued, OECD said on Tuesday.
According to the Organisation for Economic Cooperation and Development's (OECD) latest Economic Outlook, India's growth rate is likely to slow to 7.1% in 2012 from 7.3% in 2011, but would inch up to 7.7% in 2013.
"The government's fiscal consolidation plans this year would help reduce inflation, narrow the current account deficit and promote more balanced growth," OECD said.
However, further action in the monetary policy front would be constrained by inflationary pressures and limited spare capacity, OECD said, adding that spending pressures, notably on subsidies, are again likely to result in overruns.
Economic worries over the past few months like rupee depreciation, high inflation and current account deficit have acted as big dampeners for the India growth story, which was seeing a growth rate of 8-9% during pre-global crisis.
The global financial crisis of 2008 pulled down India's growth rate to 6.7% in 2008-09. India has projected a growth rate of 7.6% in 2012-13, up from 6.9% recorded in the previous fiscal.
The Indian economy has slowed owing to "weakness" in manufacturing and investment spending. Meanwhile, softening external demand and rising imports have resulted in a widening current account deficit (CAD).
CAD arises when a country's imports are more than exports. CAD stood at around $45.9 billion, or 2.7% of the GDP in FY11.
The CAD is projected to be around four% (or $77 billion) of the national GDP in FY13.
Regarding inflation, OECD said although inflation has moderated from double-digit rates, it remains relatively high and expected increases in regulated prices of some oil-related products will add to price pressures which will continue to weigh on household consumption."
"This in turn will make the climate for investment less favourable. As a result, growth is expected to remain subdued through much of the year," OECD added.
Meanwhile, the global economy is also gaining momentum, but the recovery is fragile, OECD said.
GDP growth across the OECD is projected to slow from an annual rate of 1.8% in 2011 to 1.6% in 2012, before recovering to 2.2% in 2013.
"With slow growth, high unemployment and limited room for manoeuvre regarding macroeconomic policy space, structural reforms are the short-run remedy to spur growth and boost confidence," OECD secretary-general Angel Gurria said.