Improvements in global economic environment, particularly in the US, recovery in exports, normal Monsoon and bottoming out of the industrial expansion are the strong reasons for revival of the Indian economy, which is very likely to grow a shade above six percent in the current financial year, an ASSOCHAM Economic Outlook Report has pointed out.
According to the Outlook Report prepared in the last fortnight, there is a definite downward movement in the prices of commodities of key interest to India like gold and crude oil and the decline in these items is not tentative but a consistent trend.
"The growth revival of the Indian economy will largely come on the back of the global factors and the normal Monsoon which will have a positive spin offs on the all-important services sector," said the ASSOCHAM Outlook Report, released on Sunday.
In the FY 2012-13, the Indian economic growth fell to five percent from 6.6 percent a year ago in the wake of drought-hit agriculture output, serious problems in the global markets hitting merchandise exports , high cost of borrowing that hit the industrial output along with other issues and a perception of a policy paralysis among the global investors.
On top of it all, a huge gap between imports and exports made things difficult for the economy, particularly the government finances and the current account deficit reached an unsustainable levels of 6.7 percent in the third quarter of FY 2-12-13.
However, the global economy and to some extent the Indian economy seem to be shifting the cyclical track which will in the short run at least work to the advantage of net importer countries like India. The trade deficit in the current FY is sure to be reduced to a much lower level from USD 190 billion in the previous fiscal. Exports which have moved in the growth trajectory are expected to gain further momentum, more so in the second half of the FY 2013-14.
The US economy, as is shown by the latest job data release, is not as bad as it looked and several other Asian and African economies are picking up momentum again. Besides, the mood in the stock markets all over the world is holding good resulting into regular flows of funds from the foreign institutional investors into the Indian market.
"A steady inflows from FIIs along with positives on FDI like USD 10.5 billion IKEA proposal will do a lot of good to the Indian macro picture. With both gold and crude oil showing a downward steady bias, the pressure on inflation is bound to get reduced. Good rains expected this year will also help check inflation making RBI revisit its tight monetary stance, which it has kept largely so far," the Outlook Report pointed out.
It said while several home-grown issues like holding up of investment of Rs 3,50,000 crore in the central sector alone are blocking growth, "worst seems to have been over".
However, corruption remains the biggest concern insofar as the overall political-economic environment is concerned. "We must admit, this environment has been vitiated in the last one month with the government grappling with one scandal or the other and the Opposition stalling Parliament."
With elections in several important states like Karnataka, Delhi, Rajasthan round the corner along with general elections due next year, the political environment is likely to get murkier making it that much more difficult for the government to push through reforms.
"But for the political logjam over coalgate and 2G Joint Parliamentary the crucial legislative business would have been through. At least the Land Acquisition Bill which had the political consensus and to some extent the Insurance Bill for revising the FDI in the sector to 49 percent really looked low hanging fruits just about weeks ago. They look difficult now," the report said.
However, the Outlook report still concluded that achieving six percent growth is doable and it could even exceed by a few points as the external sectors seem to be turning for better.
"Except for Europe where looks a far cry, the problems in the rest of the world seem to be edging out. However, as a nation India has to keep a vigil and should not allow political freebies which can damage the overall fiscal situation. In an election year, the Finance Minister is likely to face demand from the Congress Party and some of the UPA allies to give political freebies, which must be resisted. After all, with great effort and luck from external sector, the overall balance-sheet is getting repaired somehow with concerns on CAD and fiscal deficit abating." the report noted.