The Indian economy is likely to grow at 5.9% in 2012-13 fiscal as there are reasons to believe the “economy has turned the corner”, a report by United Nations Economic and Social Commission for Asia and the Pacific (UN ESCAP) said on Thursday.
Noting that India’s growth has been slowing down since 2011, mainly on account of “severe” monetary tightening by the Reserve Bank of India, the report has forecast the economy to grow at 6.8 per cent in 2013-14.
“Firstly, in September 2012, the government signalled its determination to pursue pending economic reforms including FDI in multi-brand retail and civil aviation and the partial phasing out of fuel subsidies,” UN ESCAP said in the report titled ‘South and South-West Asia Development’ Report 2012-13.
UN ESCAP is the regional development arm of the United Nations for the Asia-Pacific region.
Further, the report said this year’s monsoon was not as weak as initially feared.
Impacted by a mix of high interest rates, policy logjam, weak manufacturing activity, rising fiscal and current account deficit and inflation that has stubbornly remained above 7% since September last year, the GDP growth slumped to a nine-year low of 5.3 per cent in the January-March quarter.
“The global economic slowdown provides only part of the explanation for this marked decline. A more important factor has been the severe monetary tightening by the RBI of policy rates in 13 episodes between March 2010 and December 2011 in order to curb inflationary expectations,” the report said.
According to the agency, high inflation as well as high interest rates adversely impacted private consumption growth, industrial investments and business sentiment.
Emphasising that ESCAP is “bullish on India’s growth prospects”, its Chief Economist Nagesh Kumar said RBI needs to ease monetary policy. “It is time to loosen the policy,” he said, adding the current inflationary trends are due to supply side issues and not demand side problems.