NewDelhi:The worst may be over for the Indian economy, with the December quarter likely the bottom of the economic cycle and a steady acceleration in growth expected in the coming year, Moody's Analytics said on Thursday. It will bring much-needed comfort to the government at a time the economy is battling the perception of an acute slowdown.
Moody's Analytics, which is an arm of global ratings agency Moody's Investors Service, has forecast economic growth in 2013 to be 6.2% against 5.1% in 2012. After presenting his 2013-14 Union Budget, finance minister P Chidambaram had forecast over 6% growth. Higher growth will translate into higher revenues and be a positive factor in taming the stubborn fiscal deficit. The agency was more optimistic about the economy's growth prospects from next year which, analysts say, should also come as a morale booster for the Manmohan Singh government which has been on the back foot in recent months over its handling of the economy.
Govt firm on arresting service tax evaders I gnoring protests from businessmen and a section of politicians, the Union finance ministry has decided to go ahead with the proposed amendments that will empower tax authorities to arrest those who collect service tax but do not deposit it with the government within the specified time. P 21 Over 7% growth to fuel inflation: Moody's
New Delhi: Moody's Analytics has predicted a 6.2% growth in the Indian economy in 2013. "Our forecast from 2014 is for an economic growth of around 7%, which is India's new rate of trend growth. This is well short of the rate near 10% from a couple of years back," Glenn Levine, senior economist at Moody's Analytics, said in the report.
But he cautioned that policymakers should be careful while pushing for double-digit growth as this is wildly optimistic and without structural reform, a dangerous view to take. He cited the case of Reserve Bank of India governor D Subbarao's push for double-digit growth. Planning Commission deputy chairman Montek Singh Ahluwalia has also said the Indian economy can return to the 8% growth trajectory in the coming years on the back of favourable conditions.
"Headlong pursuit of double-digit GDP growth three years ago kept policy setting too loose for too long, causing the economy to overheat and contributing to the current problems of inflation and current account deficit," Levine said in his report. "Policymakers should end any pretense that the economy can grow at 10% without fanning inflation--it simply can't. Anything above 7% will lift inflation and result in a more painful future adjustment," the Moody's Analytics report said.
According to Levine, apart from stability in the global environment, the biggest change is that the government is now on a steady path of fiscal and regulatory reforms and better governance. "The so-called big bang of economic reforms announced since August has helped lift corporate confidence and should translate into better spending and capital expenditures from mid-2013," he said.
"Risks around the economy, particularly the fiscal and current account deficits, have begun to recede. Gains in financial markets reflect the rising expectations around the economy as well as lower risk," the Moody's Analytics senior economist added.
He said the 2013-14 Budget delivered the easiest and smallest cuts in the deficit, enough to free up funds to help the government's 2014 electoral prospects without fanning fiscal risk. The government has announced plans to continue with rolling back fuel subsidies, tax income of high net worth individuals and some luxury items as well as a modest asset sales programme.
"None of this is particularly prudent, and the Budget does nothing to fortify India's long-term growth. But it does suggest that government consumption, which slowed sharply in the fourth quarter, will accelerate in 2013, lifting GDP growth," Levine said.
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