Why India's economic growth will pick up in 2013

A decline in oil prices, improving demand situation in abroad markets and structural reforms at home will help Indian economy regain its high growth trajectory in the coming years, according to US investment banking giant Goldman Sachs.

"We see growth picking up gradually to 6.5 per cent in 2013 and further to 7.2 per cent in 2014," Tushar Poddar, managing director and chief India economist of Goldman Sachs, has said.

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According to Poddar, India's gross domestic product (GDP) growth will accelerate from 5.4 per cent in 2012 and remain high through 2015-16.

"A decline in oil prices in real terms over the next few years, a more favourable external demand outlook and domestic structural reforms which can ease some supply-side constraints" will drive India's growth, he said.

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Some economists expect the economy to start recovering in the second half of the financial year itself.

"Growth appears to be bottoming out and we estimate it to be a tad better in the second half than the first-half. The recent policy activism from the government and a favourable base strengthen this view," said Sachchidanand Shukla, senior vice-president and economist at Axis Capital in a report yesterday. In the first half of the financial year, the economy grew 5.4 per cent.

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But it will require greater efforts for achieving a higher growth.

"Any chance of returning to an eight per cent plus growth trajectory would necessitate a far greater boost to investment, wide-ranging fiscal reforms, and greater policy efficacy. India is likely to face less pressure in 2013, but we hope the breathing room will not act as a deterrent to medium-term growth-critical measures," said Taimur Baig and Kaushik Das of Deutsche Bank in a report on Thursday.

However, Credit Suisse on Thursday cut its FY13 growth estimate for the country by a notch to 5.9 per cent, attributing it to delay by the Reserve Bank of India (RBI) in cutting interest rates.

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The international brokerage also lowered its FY14 growth forecast to 6.9 per cent from the earlier 7.2 per cent.

Credit Suisse expects RBI to cut rates by 50 basis points only in January and not in the upcoming mid-quarter policy review on December 18.

The central bank has been holding on to its high rates despite concerns over growth, citing inflation concerns.