India Economic Update – March quarter 2013

In the final quarter of 2012-13, the Indian economy grew by 4.8%. This was broadly similar to the upwardly revised third quarter estimate of 4.7%. Somewhat softer growth in the last 2 quarters of the current fiscal year has pushed overall growth in 2012/2013 to 5%, the lowest in a decade.

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  • The Indian economy (Production, at factor cost) expanded by 4.8% in the March 2013 quarter. Annual growth over the 2012-13 fiscal was 5%, the lowest in a decade.
  • The services sector recorded the fastest growth, while the industry sector, particularly mining, was disappointing.
  • Partial indicators such as industrial production also reveal generally soft conditions. Moreover, leading indicators such as the RBI’s Industrial Outlook Survey do not point to any rapid turnaround in growth.
  • The Central Government’s Gross Fiscal Deficit came in at 4.9% for the 2012-13 FY, an improvement on the 5.2% projection.
  • The Current Account Deficit remains very high, driven by oil and gold imports. The Government has hiked duties and have imposed restrictions on gold imports by banks and trading houses.
  • The RBI has also launched Inflation indexed bonds, in a bid to dissuade investors from investing in gold, and better channel savers’ funds for more productive investments.
  • Inflationary pressures are contained, which has provided space to the RBI to cut the benchmark Repo rate.
  • Foreign exchange reserves remain sufficient to cushion against external liquidity shocks, although short term borrowing by the private sector needs to be monitored for exchange and interest rate risk.
  • Group Economics is forecasting a growth rate of 5½% during 2013, rising to 6¼% in 2014.
  • Critical factors include a continuation of the reform process commenced in September 2012, an easing of structural and policy bottlenecks, including more expedited project clearances, as well as a favourable monsoon season.

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