Economic growth may improve to 6.1 per cent in the next financial year, from the decade low of 5 per cent in 2012-13, on the back of reform measures announced after mid-September 2012, India Ratings said today.
The rating agency also expects aggregate State governments’ fiscal deficit to go up to 2.4 per cent against the budget estimate of 2.1 per cent.
“India Ratings has a stable outlook on State government guaranteed debt programme as it expects credit quality of State governments to remain stable. This is despite the growth slowdown continuing in financial year 2012-2013, touching a decade low of 5 per cent. The agency estimates growth to revive to 6.1 per cent in the FY14,” it said.
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India Ratings expects slippage in aggregate fiscal deficit of states to be 0.3 per cent of the gross domestic product, from the budgeted fiscal deficit of 2.1 per cent in 2012-13. Unlike, the earlier episode of fiscal slippage in 2008-09, the slippage in the current year is expected to be low due to absence of adverse shock of salary revision.
Economic reforms to have effect
The agency noted that both global and domestic headwinds pulled down India’s economy growth to 6.2 per cent in 2011-12. However, economic reform measures announced by the government since mid-September 2012, have changed the sentiments.
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“The impact of these reform measures on macro parameters will be felt in 2013-14. In 2012-13, these measures will have some impact on controlling fiscal slippage,” it said in a report.
Industrial growth performance in the next fiscal is expected to improve to 4.4 per cent from 3.1 per cent in the current fiscal.
The Central government tax collection in the next financial year would rise due to higher projected growth in 2013-14 leading to increased growth in current transfer to states, it said.
Barring a few states, it does not see significant slippage from state’s budgeted deficits, even though the growth in 2012-13 is the lowest since 2002-03. Aggregate debt of states in the next fiscal is likely to decline to 21.7 per cent due to improved economic condition. However, the fiscal slippage would not be significant enough to lead to debt insolvency issue, it said.
Regarding the money market liquidity conditions, it said, the liquidity of state governments has remained comfortable. But tighter money market conditions have led to the spread on state government market borrowing increasing to 0.53 per cent (up to January 21, 2013) from 0.27 per cent in 2011-12, it added.