OECD pegs India’s FY-14 growth at 3.4%

NEW DELHI: Paris-based Organisation for Economic Co-operation and Development ( OECD) has said Indian economy will grow just 3.4% in the current financial year, almost same as the 3.3% growth recorded last year.

This is even below the 3.7% projection of the International Monetary Fund ( IMF) and 5.7% estimated in its earlier May forecast.

These estimates are based on market prices, and are not strictly comparable with India’s official statistics that measure economic output at factor cost.

On this measure, Indian economy expanded 5% in 2012-13, a decade low, and 4.4% in the first quarter of the current fiscal. While the government is still hopeful of economy expanding at over 5% rate, most private estimates are in the range of 4.5%.

In the second OECD Economic Outlook of the economy, released on Tuesday, OECD, a grouping of mostly developed countries that also tracks some of the important emerging economies, saw global economy recovering at a modest pace in 2014 and 2015.

OECD projects world economy to grow 2.7% this year and recovering to 3.6% in 2014, down from 3.1% and 4% forecast in May. “The pace of the global recovery is weaker than forecast last May, largely as a result of the worsened outlook for some emerging economies,” it said. “The recovery is real, but at a slow speed, and there may be turbulence on the horizon,” OECD Secretary-General Angel Gurria said. OECD sees Indian growth recovering to 5.1% next financial year and 5.7% in 2015-16.

The country’s economic activity is expected to recover gradually as “rupee depreciation supports exports, infrastructure projects cleared by the Cabinet Committee on Investment come on stream and political uncertainty declines after the general election due in the spring 2014,” OECD said in a statement. OECD sees Indian economy facing multiple issues arising from the rupee depreciation.

“However, the rupee depreciation is putting pressure on inflation and the public finances as well as on the corporates and banks with high external debt exposure,” it said. “Supply constraints will continue to restrain growth, adding to inflationary pressures and the current account deficit.”

It welcomed India’s ‘new monetary policy framework that puts more weight on inflation as a policy anchor’ and argued that the land acquisition bill could promote investments, but warned the food security bill may prove costly. “Priority should now be given to cutting energy subsidies, better targeting household transfers, implementing pending tax reforms, improving infrastructure and reforming the labour market,” it said.