May 10, 2013

West Bengal cuts India's FY14 outlook

By Arup Roychoudhury

Financial Express, Posted online: Wednesday, May 01, 2013 at 0000 hrs

New Delhi : The World Bank slashed India’s economic growth outlook for 2013-14 to 6.1% from 7%, on the back of an expected fall in agricultural and services growth, but said that an increasingly favourable global environment and rising domestic demand may drive the country’s GDP growth to 8% in the long term.

World Bank’s latest India development update, released on Tuesday, sees the agricultural sector growing at 2% and services growth at 7.4% for the current financial year, down from the 2.7% and 8.5% respectively that it saw earlier.

The World Bank’s growth projection, which is 13% down over its earlier expectation, comes at the lower end of finance minister P Chidambaram’s growth target for 6.1 to 6.7 % for the same year. The PMEAC sees 2013-14 GDP growth at 6.4%.

“The World Bank’s expectations are on the higher side. Services sector growth is expected to remain low due to a relative slowdown in areas like financial services or transportation,” Sujan Hajra, chief economist of Anand Rathi Securities, told FE. Hajra sees FY14 GDP at 5.7-5.8% much lower than projections of the government as well as the World Bank.

He echoed the bank’s medium to long-term expectations and said that the basic India story remained unscathed, with the current weakness a result of a cyclical slowdown.

“Recent data point to some improvement in economic activity. Together with a modest improvement in investment and some strengthening in the global economic activity, signs point to a gradual recovery in growth ahead,” the report stated. It pegs FY14-15 GDP growth at 6.7% and the last financial year’s expected growth at 5%, in line with that of the government’s central statistical office.

The bank stated that while a rise in domestic demand, easing inflationary pressure and lower fiscal deficit will give more room for the government to pass through reforms, job creation, infrastructure bottlenecks and the expected pressure on expenditure due to a possible roll out of the food security Bill could create headwinds.

“Infrastructure remains a challenge. While the government has recognised this, there is no single way to address it. There are good examples of world class infrastructure in parts of the country. It is about how you take the best practices out of these and replicate them in other parts of India,” Denis Medvedev, senior country economist of the World Bank, said.

In a separate report on South Asian economies, the bank stated that other countries will see a spillover effect and benefit in the medium-to-long-term from India’s influence following the regional giant’s slew of reform measures and increasing foreign investment.

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