India's economic growth is expected to accelerate to 6.7 percent in 2013-14 from the projected rate of 5.5 percent in the current financial year on a revival in consumption, CRISIL said in a report Wednesday.
A pick-up in agriculture, predicated on a normal monsoon, lower interest rates and higher government spending will support private consumption demand, the research and ratings agency said.
“India’s GDP growth in 2013-14 will be supported by the revival of the private sector consumption growth aided by higher growth in agriculture, high government spending and lower interest rates,” Roopa Kudva, managing director and chief executive officer, CRISIL, said in the report.
According to the report, core inflation is expected to come down to 7 percent in the financial year beginning April 1, 2013, as against the projected inflation of 7.7 percent in 2012-13.
“The improved agricultural output, along with a stronger rupee and lower crude oil prices will also help in reducing Wholesale Price Inflation (WPI) to around 7 percent from 7.7 percent projected for 2012-13,” it said.
CRISIL expects that the Reserve Bank of India (RBI) would cut interest rates by 75-100 basis points this year on the back of easing inflationary pressure. This would lower retail lending rates and boost demands in interest rate sensitive segments.
“The likely increase in government spending in the form of higher expenditure on social sector schemes and rural development will be driven by the upcoming general elections in 2014,” it said.
Increased welfare expenditure by the government, lower interest rates, moderation in inflation, and high farm incomes (assuming a normal monsoon) will boost household spending and, thereby, benefit sectors such as consumer durables, hotels and restaurants and financial services, the report said.
“Further, improved external demand, as a result of marginal recovery of global growth, could raise India’s exports, especially in the IT and IT-enabled services sector. We, therefore, expect the services sector to remain healthy at 8 percent in the next fiscal,” it added.
According to the report, the agriculture sector is expected to grow by 3.5 percent in the 2013-14 financial year.