Welfare spending, improvement in private consumption, lower interest rates and better show by agriculture will lead to the growth number going up to 6.4 per cent

Global ratings major Standard & Poor’s (S&P), which has threatened to downgrade the country’s sovereign rating to junk, on Monday, said it sees economic growth improving to 6.4 per cent next fiscal.

The agency also retained its growth forecast for the current fiscal at 5.5 per cent, half-a-percentage-point above the readings by the Central Statistics Office.

“The increased government welfare spending because of the next general elections, improvement in private consumption, lower interest rates and a better show by agriculture will lead to the growth number going up to 6.4 per cent in 2013-14,” agency’s credit analyst Geeta Chugh said.

Ms. Chugh said the growth number would go up further to 7.2 per cent in 2014-15 as mining and power sectors would also start showing improvement.

The comments come within a fortnight of the CSO forecasting a poor 5 per cent reading of GDP in the current fiscal, the lowest in a decade.

Ms. Chugh, however, clarified that the relative uptick in growth had already been factored in the sovereign rating, which was the lowest investment grade rating and the worst among BRIC.

The agency had cited a host of concerns, including the sagging growth numbers, fiscal imprudence and lack of policy initiatives in the past as the pain areas.

Finance Minister P. Chidambaram, assuming charge in August, took a slew of measures which led to an increase in investor confidence.

Ms. Chugh said these steps would lead to a gradual recovery, but warned that the agency would look for progress on the implementation front.

Early signs

Referring to specifics like the Cabinet Committee on Investments and a new Land Acquisition Bill, which is likely to be passed in the Budget session, Ms. Chug said, “These are early signs that things have started to move.”

The real effect of the recent measures, which have boosted investor confidence, will be visible only starting the second half of 2013, she said.

The reform process needed to be pushed and carried forward, she added.

“We are at the bottom while it comes to the corporate sector, but the recovery will take at least six to nine months. It will not be a V-shaped sharp recovery but a gradual one,” she said.

Banking system

On the banking system, the rating agency said the asset situation of banks would continue to be under stress next fiscal and the scenario would improve only by 2015, as economy started to look up.

“The troubles for the banking system here are likely to increase in the next 12 months due to slow economic growth and sluggish fiscal reforms,” the agency said. It also added that the woes were close to bottoming out.

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