Economy Feb 25, 2013
Mumbai: Global ratings major Standard & Poor's (S&P), which has threatened to downgrade the country's sovereign rating to junk, today said it sees economic growth improving to 6.4 percent next fiscal.
The agency also retained its growth forecast for the current fiscal at 5.5 percent, half-a- percentage-point above the readings by the Central Statistical Organisation. "The increased government welfare spending because of the next general elections, improvement in private consumption, lower interest rates and a better show by agriculture will lead to the growth number going up to 6.4 percent in FY14," agency's credit analyst Geeta Chugh said.
Chugh said the growth number will go up further to 7.2 percent in FY15 as mining and power sectors will also start showing improvement. The comments come within a fortnight of the CSO forecasting a poor 5 percent reading of GDP in the current fiscal, lowest in a decade.
Chugh, however, clarified that the relative uptick in growth has already been factored in the sovereign rating, which is the lowest investment grade rating and the worst amongst the BRIC. The agency had cited a host of concerns including the sagging growth numbers, fiscal imprudence and lack of policy initiatives in the past as the pain areas.
Finance Minister P Chidambaram, assuming charge in August, took a slew of measures which led to an increase in investor confidence. Chidambaram has repeatedly stated that his ministry is committed to adhering to the fiscal deficit targets and pegged the number for this year at 5.3 percent.
Chugh said these steps will lead to a gradual recovery, but warned that the agency would look for progress on the implementation front.Referring to specifics like the Cabinet Committee on Investments and a new land acquisition Bill that is likely to be passed in the Budget session, Chug said, "These are early signs that things have started to move."
The real effect of the recent measures, which have boosted investor confidence, will be visible only starting the second half of 2013, she said. Reform process needs to be pushed and carried forward, she added. "We are at the bottom while it comes to the corporate sector, but the recovery will take at least six to nine months. It will not be a V-shaped sharp recovery but a gradual one," she said.
More From R Jagannathan.