Export gains to offset rupee depreciation impact: World Bank

The adverse effects of rupee depreciation are likely to be offset by gains in export performance, according to the latest India Development report released by the World Bank in New Delhi on October 16.  

The report says that although exports did not respond to the rupee's depreciation in June, export performance recovered strongly in July and August. During the two months, merchandise exports grew at an 18-month high of 12.3 per cent year-on-year. "Our view is that it's an opportunity for India to take advantage from the exports market," says Martin Rama, Chief Economist for the South Asia Region at the World Bank.

Since May this year, the local currency depreciated substantially. It fell to a record low level of Rs 68.85 to a dollar on August 28.

A bumper agricultural output is expected which will have a positive impact on GDP growth, according to the report. Till September this year, India had seen five per cent higher rainfall than normal. This encouraged farmers to increase total sown area by five per cent year-on-year for the kharif cropping season.

The World Bank has revised its GDP growth estimate for India downward for the current financial year, from 6.1 per cent, as predicted in April 2013, to 4.7 per cent. It says that is largely due to the tepid economic growth in the first half of current fiscal year. "Improvement in the macroeconomic framework, strengthening of global conditions, and continued efforts by the authorities to improve the business environment will accelerate growth in the second half of 2013/14, bringing economic growth to 4.7 per cent for the entire fiscal year," says the report.

For 2014/15, the report pegs growth at 6.2 per cent. Manufacturing growth will continue to accelerate, it says, and new and existing investment projects will come on stream.

According to World Bank, the important reform initiatives the government put in place have gathered momentum. These include a major expansion of social protection coverage with the passage of the Food Security bill, a new Land Acquisition bill, a Pension bill, a Banking Laws bill that allows new banking licenses and a Companies Bill that replaces a 60-year-old legislation. "The current downturn provides an opportunity to push ahead with reforms to accelerate growth," it adds.

The bank also says that inflationary pressure is likely to moderate. "WPI inflation is expected to average 5.3 per cent in the current financial year and decelerate further to 5.2 per cent in 2014/15 as pressure from food prices decline due to better agricultural output," it says.

On the current account deficit, the report says that it is expected to narrow down to 4.1 per cent of GDP in 2013/14 and 3.7 per cent in the next financial year.