Home »  News »  India

Crisil sees economy growing at 6.5% in next 5 years

Monday, 21 April 2014 - 4:43pm IST | Agency: PTI

Rating agency Crisil has said a stable government post-elections is likely to help the country grow at an average of 6.5 per cent for the next five years.

"Our base-case forecast of an average GDP growth of 6.5 per cent between FY15 and FY19 is premised on a decisive mandate in the upcoming general elections," the rating agency majority-owned by Standard & Poor's said in a report.

The International Monetary Fund has predicted global growth for the calendar years 2014-18 at 4 per cent. However, Crisil said it is not the election results which impact the economy, except in improving sentiment, but policies formulated by the new government that will boost growth.

Economic growth eased to 4.6% in the first three quarters of FY14 after clocking 9.3 per cent in FY12 and the just-concluded financial year may log the lowest growth rate in decades.

Crisil believes a decisive mandate will create an environment for speedy resolution of policy bottlenecks, hasten reforms and crank up investment efficiency.

"An improvement in investment efficiency, which has fallen drastically over the last two years, is expected to kick in with faster project clearances, implementation of stalled infrastructure projects and resumption of mining activities," the rating agency said.

This will support investment growth when both domestic and global demand begins to rebound and improve capacity utilisation, thus laying the foundation for the country's entry into a phase of healthier growth, the report said.

Crisil said achieving an average growth of 6.5% over the next five fiscals is not enough for a country with 269 million people living below the poverty line, which needs to provide jobs to its exploding labour force.

"By not doing enough to accelerate growth, and thus job creation, the country risks setting off a vicious cycle of lower household income, consumption and investment spending that would be so much harder to shake off -- not to mention the utter loss of the demographic dividend," the report said.

According to Crisil, the task before the new government is clear -- the focus has to be on improving the efficiency of the economy by de-bottlenecking it.

Crisil said the evolving investment dynamics, however, show that neither a surge in investments nor improvement in efficiency witnessed during fiscals 2004-2011, which led to near 9 per cent GDP growth, would recur in the next five years.

"There is a natural limit to any upside beyond 6.5%. And if the government formation after the ongoing general elections becomes a messy affair with no clear mandate, our bets on growth are off," the report added.

The agency said if progress on the policy front, which is expected to improve the investment climate, does not manifest as envisioned, growth could slip to an average 5 per cent over the next five years.

The cost of policy inaction would thus be very high for the economy, the report said.

It believes, among other factors, slower-than-expected recovery in the US and the eurozone or a severe failure of the monsoon in two-three years could also lower growth below its forecast.

Jump to comments

Recommended Content