NEW DELHI: The forecast for normal monsoon rains have come as another shot in the arm for policymakers battling to reverse the growth slowdown in Asia’s third-largest economy. Economists said the prospect of likely normal monsoon during June-September period augured well and should help boost growth, rural incomes and help in moderating stubborn food prices that have hovered around double-digits.
The news comes close on the heels of softening global crude oil and gold prices, two of the country’s largest imports, bringing temporary relief for the government trying to control a widening current account deficit ( CAD). “It will certainly help growth prospects and create potential for reduction in food prices,” said D K Srivastava, chief policy adviser at Ernst & Young.
“In the context of global commodity prices one would expect that in another two quarters both WPI and CPI inflation should come down in India. With a good agriculture growth, close to 6% overall growth should be feasible,” he said. If the southwest-monsoon rains follow prediction, it would lead to bumper harvests and boost rural incomes. This in turn is expected to trigger demand for consumer goods and consumer non-durables and help revive the industrial sector.
The Economic Advisory Council to the Prime Minister has forecast that the economy would grow 6.4% in the current fiscal on the back of reform measures announced by the government since September. As inflation moderates, it is expected to provide some headroom to the Reserve Bank of India to cut key rates which should add to the growth prospects. While the central bank will be carefully watching the inflation trajectory, its stance on rates would also be guided by the state of the global economy, the progress on fiscal consolidation and the government’s reforms drive.
The International Monetary Fund ( IMF) has also said that growth in India has bottomed out and expects the economy to grow 5.7% in 2013 calendar year and 6.2% in 2014. The spate of approvals to pending projects by the Cabinet Committee on Investment (CCI) is also expected to boost investment and fuel industrial growth in the months ahead. But, experts caution that the government needs to sustain its reform momentum to accelerate growth. Political uncertainty in the run-up to the 2014 general elections is likely to slow down the appetite for reforms. Economists said the growth prospects for the economy appear to be sound but there is a need to step up the reforms drive. “Normal monsoon is definitely good news but that necessarily will not help bring out the economy from where it is,” said economist Kunal Kundu.