India forecast a faster acceleration in economic growth than analysts had estimated, a prediction facing risks from interest-rate increases to quell inflation and expenditure curbs by the government.
Gross domestic product will rise 4.9 percent in the 12 months through March 31, compared with the decade-low 4.5 percent in the previous fiscal year, the Statistics Ministry said in New Delhi yesterday. The median of 24 estimates in a Bloomberg News survey had been 4.7 percent. The projection may be revised upward later and the final growth rate is unlikely to be less than 5 percent, Finance Minister Palaniappan Chidambaram said in a statement e-mailed today.
India last month joined nations from Brazil to Turkey in raising interest rates, striving to stem the fastest inflation in Asia and shield the rupee from a reduction in U.S. monetary stimulus that’s hurt emerging-market assets. Opinion polls signaling that the general election due by May could lead to an unstable coalition government are adding to risks.
“Fiscal consolidation efforts will continue to remain a focus area for the new government as well,” said Devendra Pant, chief economist at India Ratings & Research Pvt., the local unit of Fitch Ratings. “There is no scope for across the board stimulus.”
The rupee, down about 15 percent versus the dollar in the past year, strengthened 0.2 percent to 62.29 per dollar in Mumbai yesterday, before the data’s release. The S&P BSE Sensex index rose 0.3 percent. The yield on the government bond due November 2023 rose to 8.74 percent from 8.72 percent on Feb. 6.
“This estimate of 4.9 per cent for the whole year will in all likelihood be revised upward in the first, second and final revisions in the next two years,” Chidambaram said in the statement. “I am confident that the final estimate will be not less than 5 per cent for the whole year. Growth in 2014-15 will show a significant improvement over 2013-14.”
Reserve Bank of India Governor Raghuram Rajan unexpectedly raised the repurchase rate by a quarter-point to 8 percent on Jan. 28, the third increase since September.
A central bank panel has suggested India should reduce consumer-price inflation to 8 percent within one year and 6 percent by 2016, and that the RBI should then adopt a 4 percent target with a band of plus or minus two percentage points.
Consumer-price inflation slowed to 9.87 percent in December, while remaining the fastest in a basket of 18 Asia-Pacific economies tracked by Bloomberg.
Chidambaram said Jan. 23 that the monetary authority also has a duty to support growth. Further tightening isn’t anticipated in the near term if consumer-price inflation slows to 8 percent by early 2015, the RBI said Jan. 28.
Inflation is a politically sensitive issue in India, where elections have been lost as prices quickened. Prime MinisterManmohan Singh has said his government could have done better at curbing price gains.
The administration is curbing expenditure to narrow the fiscal deficit to about 4.8 percent of gross domestic product this fiscal year, a six-year low. Other economic headwinds stem from an investment logjam, with red tape stalling about $100 billion of projects.
In a sign of budget constraints, the government said this past week it has put off a final agreement to buy 126 Rafale combat planes worth more than $11 billion from Dassault Aviation SA to the next fiscal year.
Manufacturing output will shrink 0.2 percent in the fiscal year ending March 31, and mining output will contract 1.9 percent, according to yesterday’s release. Farm output is set to expand 4.6 percent. Financing, insurance and real estate services will expand 11.2 percent.
The main opposition Bharatiya Janata Party is set to win 188 seats in the 545-member lower house, surpassing the 182 seats it won in 1999, according to a C-Voter poll for India Today published Jan. 23.
The ruling Congress party may get as few as 91 seats versus 210 now, dropping to its lowest tally on record, the poll indicated. A separate survey on Jan. 24 showed the BJP with as many as 210 seats, and 108 for Congress.
Standard & Poor’s has warned India’s credit rating may be cut to junk unless the election leads to a government capable of reviving growth. If inflation slows, Asia’s third-biggest economy can grow between 5 percent and 6 percent in the next fiscal year ending March 2015, according to the RBI.
“The larger traction for growth will come in the second half” of the next fiscal year, presuming a stable government emerges, said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai.