India's economy is likely to grow at 6.6 per cent in the next financial year (FY14) on the back of expected monetary easing by the Reserve Bank, coupled with possible policy initiatives by the Government, Barclays has said in a report.
"More accommodative monetary policy and government policy initiatives should help some recovery in growth in FY14. The likely absence of headwinds from weather aberrations (such as in 2012) should help agriculture and consumption demand, while industrial growth will enjoy favourable base effects. Accordingly, we expect GDP growth to reach 6.6 per cent in FY14 from (estimated) 5.6 per cent in FY13," according to the report released today.
It, however, added that growth of Asia's third largest economy would stay below its historical averages. "We would view it as a move towards normalisation of economic activities rather than as a sharp turnaround in growth momentum."
Indicating that future policy initiatives will depend on the course of politics this year, the report maintained it would be difficult to stick to the 5.3 per cent fiscal deficit target set by the Government on the back of weaker revenues among other factors.
"Overall, we maintain our expectation that the fiscal deficit will reach 5.5-5.7 per cent of GDP this fiscal, which will only be a limited improvement from 5.9 per cent last fiscal," it said.
Referring to a possible rate cut, the report said, "RBI will start to cut rates in Q1 of 2013 and we continue to forecast a 100 bps reduction in the repo rate by mid-2013."
Barclays said inflation would start softening gradually from early 2013. About the rupee, the report said strengthening of the US dollar over the next 6-12 months would constrain the potential appreciation of the Indian unit.
"Taking all such counteracting forces into consideration, we forecast the rupee at 53.50 to the dollar over the next 3-12 months," it said.