New Delhi: The Indian economy is expected to grow 7.8% in calendar 2013, but continued policy uncertainty would weaken investment sentiment and result in softer near-term growth and an erosion of longer-run prospects, the Organisation of Economic Cooperation and Development (OECD) said in its economic outlook released on Tuesday.
The latest report is optimistic about India's growth prospects against the backdrop of a fragile and uneven global economic recovery.
Several other think tanks and economists have cut India's growth estimates due to the slowdown in industrial growth and government's stalled economic reforms. The government expects the economy to expand 7.6% in the current fiscal year which ends in March, but economists say growth could be lower due to the slowdown and the subdued business environment.
"A moderate cyclical pick-up in investment is projected in the near term... Later this year and into the next, growth is set to pick up to around trend rates, supported by the delayed effects of the recent monetary policy easing," OECD said in its 2012 Economic Outlook. However, still-high inflation will limit the room for significant further relaxation. The recent widening of the current account deficit will unwind as domestic demand remains relatively subdued and external demand strengthens, the report added.
The report said inflation is projected to edge down only gradually, remaining uncomfortably high for some time. "The decision by the government not to raise regulated petroleum prices in line with increases in international oil prices has resulted in oil marketing companies incurring large financial losses," the report said. "It is expected that regulated prices will need to rise significantly this year, contributing to higher, if transitory, inflation. In addition, despite the slowdown, the economy may not be operating with significant spare capacity, as weak investment and inertia in implementing important structural reforms have likely dragged down potential growth," the report said.
It said that although inflation has moderated from double-digit rates, it remains relatively high and expected increases in regulated prices of some oil products will add to price pressures that will continue to weigh on household consumption.
FISCAL PRESCRIPTION
tOECD remains bullish on growth despite uneven recovery globally
tPolicy paralysis to hurt investor sentiments, cut near-term growth
tVital structural reforms would boost confidence, allow a more accommodative monetary policy
tInflation to remain very high for some time before reducing gradually
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