India to grow 5% in FY '14: Rajan

Expects CAD will remain below 3%

India to grow 5% in FY '14: Rajan

The Reserve Bank on Wednesday said India’s economy would grow about 5 per cent in this financial year while the current account deficit would be below 3 per cent of GDP.

The central bank also asserted that the country is ready for the tapering of the US Federal Reserve’s bond purchases.

“We are seeing some glimmerings of stronger growth. But it’s too early to say we have certainly hit bottom. But I am hopeful that we should be around 5 per cent,” RBI Governor Raghuram Rajan told reporters on the sidelines of the Delhi Economic Conclave here.

In October, the RBI lowered the economic growth forecast for the current financial year to 5 per cent from 5.7 per cent projected earlier. The economy expanded 4.8 per cent in the second quarter of 2013-14, pulling up GDP growth in the first half to 4.6 per cent.

Rajan said India is ready for the withdrawal of monetary stimulus by the US Federal Reserve. The reversal of the easy money policy by the US is expected to impact global markets as well as the economy.

The current account deficit (CAD) rose to a record 4.8 per cent of gross domestic product (GDP) in 2012-13 from 2.8 per cent in 2010-11.

“The CAD, by every estimate, it’s below 3 per cent this fiscal. We are in a much better position. It will be below 3 per cent,” Rajan said.

‘Higher rates for willful defaulters’

Hinting at higher rates for wilful defaulters, Rajan said the central bank will come out with a discussion paper next week with regard to distressed borrowers and rising NPAs.

"For willful defaulters or a new category that we call uncooperative defaulter, future borrowing will become more expensive. By uncooperative defaulter I mean those who don't work with their lenders to achieve equitable and efficient resolution of stressed assets," he said.

Rajan said there was a need to ensure that the system recognises financial distress and provide for fair recovery of loans in the interest of lenders and investors.

"Next week, we propose to put out a discussion paper... The key element (will be) to deal with distressed borrower... It will focus on recognition, resolution and recovery (of assets)," he said.

Rajan said inability to deal with the problem of distressed assets will have a bearing on growth prospects. To improve the health of the financial sector and to improve asset quality of banks, besides preventing slippages, RBI from time to time issues instructions to banks.

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