Indian economy is expected to improve marginally in the current financial year with its GDP at market price projected to expand by 3.4 per cent from 3.3 per cent in the previous fiscal, think tank OECD said on Tuesday.
The country's economic activity is expected to recover gradually as "rupee depreciation supports exports, infrastructure projects cleared by the Cabinet Committee on Investment come on stream and political uncertainty declines after the general election due in the spring 2014", OECD said.
Paris-based Organisation for Economic Co-operation and Development (OECD), a grouping of mostly developed nations, has pegged India's GDP growth at market price to be 5.1 per cent in 2014-15 period and further rise to 5.7 per cent in 2015-16 fiscal.
India calculates GDP at constant price which grew at 5 per cent in 2012-13 fiscal, the lowest in a decade. In the current financial year ending March 2014, Finance Minister P Chidambaram expects economy to grow by 5-5.5 per cent.
According to OECD, rupee depreciation is putting pressures on inflation, public finances, corporates and banks with high external debt exposure. "Supply constraints will continue to restrain growth, adding to inflationary pressures and the current account deficit," it added.
Meanwhile, OECD welcomed India's new monetary policy framework that puts more weight on inflation as a policy anchor. However, it said that containing inflation pressures also requires reducing the fiscal deficit and dealing with supply constraints that limit growth.
"The new Land Acquisition Law may promote investment, but the new Food Act will be fiscally costly. "Priority should now be given to cutting energy subsidies, better targeting household transfers, implementing pending tax reforms, improving infrastructure and reforming the labour market," it said.
OECD projects world economy to grow 2.7 per cent this year before accelerating to 3.6 per cent in 2014. "The pace of the global recovery is weaker than forecast last May, largely as a result of the worsened outlook for some emerging economies," it said.
According to the grouping, the global economy is expected to continue expanding at a moderate pace over the coming two years but cautioned that policymakers need to ensure growth is not derailed due to instability in financial markets and underlying fragility in some major economies.
"The recovery is real, but at a slow speed, and there may be turbulence on the horizon,” OECD Secretary-General Angel Gurria said.