Credit Suisse sees recovery in Indian economy from June qtr

MUMBAI: The Indian economy is set to recover smartly from June onwards, given a litany of good tidings such as falling inflation and interest rates, and an improvement in the fiscal and current account deficits, international brokerage Credit Suisse said in a report today.

"We are hopeful that a recovery will finally begin from the June quarter. Over the next few months we should see further fall in wholesale price inflation and interest rates, together with a decline in the twin deficits and mounting evidence of the long-awaited economic recovery," Credit Suisse Director and Chief Economist Robert Prior-Wandesforde said.

He said, however, this optimism does not ignore myriad structural issues plaguing Asia's third largest economy.

Prior-Wandesforde said the first and the foremost positive is that the government will relax its spending controls, which will give a major boost to the economy.

He said: "First and foremost, our estimates suggest that achieving a 4.8 per cent budget deficit only requires net budgetary savings of 0.25 per cent of GDP, which is easily achievable via divestments.

"Second, the interest rate environment is becoming less oppressive as short-term money market and commercial paper rates have been falling for more than a year now."

He added that RBI has already joined in with interest rate reductions, and benefits of the structural reform measures on business confidence and investment are likely to become increasingly visible.

Prior-Wandesforde noted, however, that the fiscal tightening came at a time when growth was bottoming out, which was evident from the December quarter GDP numbers.

They showed that the government consumption growth fell from 8 per cent to under 2 per cent (or to the tune of 1 per cent of GDP), which is likely to pull GDP down to 5 per cent, a downward revision from 5.3 per cent for FY13.