India's economy is expected to record stronger growth momentum of 5.5 per cent in the current fiscal, underpinned by "solid expansion" in industrial and services sectors, and impetus to economic reforms by the new government, according to a UN report.
In its report, the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) said a fragile global economy has "weighed" on Indian economy in recent years, but "delays" in tackling "structural impediments", such as rising inequality, high inflation and infrastructure shortages have also affected the growth rate.
"Indian economy expanded by 4.7 per cent in the fiscal year 2013, up from 4.5 per cent in the previous year. This rate is, however, far below the 9.5 per cent pace registered in the years prior to the global financial crisis," said the report, released at a meeting of UNESCAP here.
Noting that the economy was heading for a rebound, it said the "formation of a new government after parliamentary elections in April-May 2014 also provides impetus to economic reforms".
Talking about the financial market volatility, the report titled 'Economic and Social Survey of Asia and the Pacific 2014' said India experienced capital outflows and sharp currency depreciation in mid-2013 on speculation of a change in the United States monetary policy stance.
"In response, capital flow management tools were introduced, such as lowering the limit on overseas investment. Moreover, after a steady decrease between January and September 2013, the policy interest rate was raised to stem capital outflows," the annual flagship publication of UNESCAP said.
It observed that "macroeconomic imbalances", such as persistently high inflation and "limited fiscal space", have constrained India's capacity to weather capital flow volatility more resiliently.
"Tight monetary policy to contain inflationary expectations and capital flight also had an impact on domestic demand. Consumer confidence deteriorated, with car sales in 2013 declining for the first time in a decade. Fixed investment also slowed, in line with sluggish demand and higher interest rates," the report said.
UNESCAP said subdued output growth pushed up the "measured unemployment" rate by one percentage point to 4.7 per cent.
On inflation, the report assessed that the inflation rate remained high at 9.5 per cent in 2013 and identified weaker currency and cuts in fuel price subsidies as contributing factors for high inflation besides supply constraints.
"High food inflation hit the poor harder, as they spend proportionally more on food purchases, especially cereals