* For India poll data click on
* Indian economy to grow 6.0 pct in FY 2013/14, 6.9 pct
13/14
* Inflation to remain at or above 6.0 percent to June 2014
* Wholesale prices likely rose an annual 6.40 percent in
March
* RBI to cut repo rate by 50 bps by end-Dec
By Yati Himatsingka
BANGALORE, April 11 (Reuters) – India’s economic growth will
remain subdued this year and any recovery will be gradual as
government spending and interest rate cuts from the central bank
revive domestic demand, according to a Reuters poll of
economists.
Although inflation is expected to ease, it will not fall
near the Reserve Bank of India’s perceived comfort level of
around 5 percent, reducing the chances of aggressive policy
action to pull the economy out of its slowest pace of expansion
in a decade.
Economists polled for the latest quarterly survey lowered
their growth forecast for Asia’s third largest economy for the
eighth consecutive time.
Gross domestic product will increase 6.0 percent in the
current fiscal year to March 2014 after it grew at a decade-low
of 5.0 percent in the previous fiscal year, according to a
median forecast of 27 economists.
That forecast is down from a 6.4 percent pace of expansion
in 2013/14 estimated in the last poll conducted in January. The
forecast for 2014/2015 was unchanged at 6.9 percent from the
previous poll.
“Recovery is seen gradual in the Indian economy with
monetary policy turning pro-growth, private consumption
strengthening with some help from government spending,” said
Nitesh Ranjan, economist at Union Bank.
Weak demand for Indian goods and services abroad has been a
major contributor to the slowdown, in addition to lack of policy
initiatives from the government.
Only towards the end of 2012, the government announced
reforms including opening up of the supermarket and aviation
sectors to overseas investors.
Although the reforms brought back some investor confidence
with portfolio inflows of around $10 billion this year, domestic
demand has been hurt by high inflation and interest rates.
And with inflation expected to remain sticky, economists
said domestic demand will only pick up gradually.
“A much stronger pickup in domestic demand will take more
time as consumption will remain weighed down by rising fuel
prices,” said Aninda Mitra, economist at Capital Economics in
Singapore.
The government, which fixes the end-user cost of diesel, in
January told retailers to raise prices of the subsidised fuel in
small amounts every month, a move aimed at propping up public
finances.
Wholesale prices, India’s key inflation measure, are
expected to remain above 6 percent in all quarters to June 2014,
averaging 6.5 percent for the fiscal year 2013/14 compared with
6.6 percent in the January poll.
The forecast for 2014/2015 was cut, however, to 6.0 percent
from 6.5 percent in the January poll.
A separate Reuters poll of 27 economists showed headline
inflation likely cooled a tad to 6.40 percent in March after an
uptick to 6.84 percent in February.
Wary of persistent inflation, the RBI left the repo rate on
hold for nine months before cutting it by 25 basis points twice
this year. The poll pointed to another 50 basis points cut to 7
percent by December.
That is in contrast to central banks in other major emerging
markets such as China, Brazil and South Korea, which have eased
policy more aggressively. On Thursday, however, the Bank of
Korea left its policy rate unchanged in a surprise decision.
POLICY DILEMMA
A record high current account deficit has also restrained
the Indian central bank from easing policy more aggressively.
The current account deficit is unsustainable at its present
level of over 5 percent of GDP, RBI Governor Duvvuri Subbarao
said last week.
The deficit hit 5.4 percent of GDP in the September quarter
and is expected to end the fiscal year 2012/13 at its highest
level ever.
But faced with an election in 2014, the government will
likely increase its spending later this year. Although that will
boost growth, it will be tougher to rein in the current account
deficit.
“The RBI will continue with the baby steps rather than any
aggressive cutting as its elbow room is limited due to a very
high current account deficit,” said Rupa Rege Nitsure, chief
economist at Bank of Baroda.
For other stories from the survey click on
(Polling by Somya Gupta and Ruby Cherian; Editing by Sanjeev
Miglani)
