|Growth is expected to gather momentum. Investment should recover as projects cleared by the Cabinet Committee on Investment are implemented and political uncertainty declines after the May 2014 general elections. The rupee depreciation over the summer of 2013 and firming external demand will underpin export growth, while the rise in rural incomes and the decline in inflation will boost consumption. However, fiscal consolidation and supply bottlenecks, coupled with still high nonperforming loans and corporate leverage, will weigh on the recovery.
Implementing the proposed inflation targeting framework will help anchor price expectations and improve business sentiment and consumer confidence. The fiscal deficit has narrowed, but more and better consolidation is needed. This would require implementing pending tax reforms and changing the spending mix away from energy subsidies towards better targeted social and infrastructure investment. Reforming labour regulations and improving the education and training systems would also promote growth and help create better quality jobs.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.