Growth may recover to 6.1% in 2013, says Morgan Stanley

India is expected to register a gradual recovery in the growth rate to 6.1 per cent in 2013 driven by positive impact from policy actions and acceleration in farm output growth, says a report by Morgan Stanley.

The country’s growth rate would witness gradual recovery considering the “challenging” environment due to high fiscal deficit, high rural wage growth and declining private investments amid a still lacklustre external demand, the report said.

“We, thus, expect only a gradual recovery in growth to 6.1 per cent in 2013 from 5 per cent in 2012, driven by some positive impact from policy actions by the government and acceleration in farm output growth from a low base,” the report said.

Morgan Stanley said that the bad growth mix of high fiscal deficit, high rural wage growth and declining private investment, needs to be addressed to revive growth in a sustainable manner.

Moreover, managing macro stability indicators such as inflation and the current account deficit will be difficult, unless the government initiates a reduction in its expenditure growth and brings rural wage growth lower.

“While we are positive that the government will continue with more measures to support improvement in investment, we are less confident that the government will be able to achieve a meaningful reduction in the fiscal deficit via expenditure control and/or cut rural wage growth in the year before the general elections,” the report added.

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