Several brokerages and economists expect the Indian economy to grow at a lower pace in 2013-14 than what was anticipated earlier because of the recent measures by Reserve Bank of India (RBI) to combat depreciation of rupee.
Economists and brokerages feel that RBI’s recent measures to control rupee weakness may impede growth of the economy.
It may be recalled that the central bank raised interest rates on borrowing under exceptional window, also known as marginal standing facility (MSF) by 200 basis points. Also, it imposed limits on banks borrowing under its overnight borrowing facility.
These measures could make funds for lending scarcer or even more expensive for Corporate India, in turn hurting GDP growth, analysts feel.
Economists in Bank of America Merrill Lynch expect the economy to grow 5.5 percent in 2013-14 compared to their earlier estimate of 5.8 percent.
Economic recovery is already fragile and tight domestic liquidity will worsen the financial conditions for corporates and banks, hurting asset quality and the growth outlook, economists feel. Therefore, there is a downside risk to their GDP growth estimate of 5.6 percent for fiscal 2014, economists at Nomura feel.