RBI sees muted growth in 2013-14 on weak investments, global woes

The Reserve Bank of India (RBI) has said India's economic expansion is likely to remain muted this financial year on weak investment scenario and sluggish global growth.

The central bank, however, said structural reforms can improve the country's recovery prospects.

In the last monetary policy in July, RBI had revised the GDP forecast to 5.5 per cent from its May projection of 5.7 per cent. In FY13, GDP grew at a decade low of 5 per cent.

"Weakness in industrial activity has persisted and global growth has been tepid," RBI said in its annual report.

It said this year's normal and spatially well-distributed rainfall so far augurs well for the agriculture sector and is expected to boost rural demand for industrial goods and services.

RBI also said economic recovery in FY14 is possible with reforms, removal of supply bottlenecks and maintenance of stability.

"Simple institutional reforms like better regulation of natural resources, improved harnessing of water resources, investing more in skill formation, digitalising land records, better integration of regional agricultural markets, freer labour markets and more competitive domestic markets can go a long way in improving India's growth," RBI said.

The report noted that there is a need to stay focussed on controlling twin deficit risks.

The government has pegged the country's fiscal deficit at 4.8 per cent of GDP in FY14 and expects it to be achieved through higher mobilisation of disinvestment proceeds, tax revenues, telecom receipts and reduction in expenditure on subsidies.

RBI said: "With growth likely to be lower, it may be difficult to achieve the budgeted tax-GDP ratio of 10.9 per cent even with the budgeted tax buoyancy of over 19 per cent."

The government will find it difficult to raise the disinvestment proceeds due to weak market condition, it said.

RBI added that even though CAD (current account deficit) is expected to widen in Q1 on account of higher trade deficit, it is likely to moderate thereafter. In Q4 of last financial year, CAD was 3.6 per cent, while for the whole of FY13 it stood at 4.8 per cent.