Indian economy seen growing at 6.4% in 2013-14

Overall economic growth in the country is expected to rise to 6.4 per cent in the current financial year (2013-14), up from the 5 per cent estimated in the previous financial year, government data showed.

While growth and, more particularly industrial growth, has slowed, the decline appears to have bottomed out, the report released by C Rangarajan, chairman of the prime minister's economic advisory council, said.

While investment and savings rates have come down, the report notes, economic growth has declined more steeply than was warranted by the decline in investment. This has been due mainly to a lag in output flows from capital assets already formed, according to the 'Review of the Economy 2012-13', released today.

The recent policy measures and administrative actions such as the recently constituted Cabinet Committee on Investment would help overcome obstacles in the speedy execution of projects and thereby output flows, the report says.

''While even existing rates of investment should enable us to grow at 7.5 to 8.0 per cent over the short term, a return to higher levels of savings and investment would take us back to the very high levels of growth which we had seen earlier,'' the report points out.

According to the advance estimates of the Central Statistical Office (CSO), growth in the agriculture sector is expected to improve from 1.8 per cent in 2012-13 to 3.5 per cent in 2013-14, assuming normal or mostly normal monsoon.

Growth in industry (including manufacturing, mining and quarrying, electricity, gas, water supply and construction) is expected to improve from 3.1 per cent in 2012-13 to 4.9 per cent in 2013-14. Overall manufacturing sector growth is projected at 4 per cent in 2013-14.

CSO has pegged the growth rate in services to improve from 6.6 per cent in 2012-13 to 7.7 per cent in 2013-14.

Global growth, although projected to pick up in 2013, would continue to remain at modest levels. In such a scenario India's projected growth rate of 6.4 per cent is relatively high and respectable.

Investment rate is estimated to be 35.8 per cent of GDP, while domestic savings rate is estimated to be around 30.8 per cent of GDP in 2012-13.

There has been a sharp decline in the productivity of capital as the incremental capital output ratio (ICOR) has shot up from its historical level of around 4.0 to much higher levels. The computed ICOR for 2011-12 and 2012-13 ranges from 5.4 to 11.4, depending on how the ratio is calculated. It appears that investment capital accumulated in projects is not yielding commensurate output.

The decline in inflation, more particularly non-food manufacturing inflation, will create more space for monetary policy to support growth. And, with a well laid out road map for fiscal consolidation, the government has shown its determination to contain the fiscal deficit.

The current account deficit, however, remains a source of concern, despite the fact that the financing of the deficit has not been a problem so far, the report says.

The next decade will be a crucial decade for India, which would need an 8 to 9 per cent growth to graduate to the level of a middle income country by 2025.

The report calls for incentives to public-private partnerships in key infrastructure sectors such as coal, power, roads, railways and ports, to act as a big stimulus to private investment and faster growth.