New Delhi: India is expected to register a gradual recovery in growth rate in the next fiscal year helped by big-bang reforms and speeding up of farm growth output on account of base effect, Morgan Stanley has said in a report.

"We expect a gradual recovery in GDP in FY 2014 to 6.1 percent, driven by some impact from positive policy actions by the government and acceleration in farm output growth on base impact," the Morgan Stanley report said.

India's GDP growth has been on a steady decline since June 2011, when it stood at 8 percent. For the quarter ended June 30, 2012, Indian economy grew by 5.5 percent. Inflation levels have also remained higher than the Reserve Bank's comfort level for quite some time now with wholesale price index (WPI)-based inflation touching a 10-month high level of 7.81 percent in September.

In a research note Morgan Stanley said: "Policy reforms, not monetary or fiscal easing, will be effective to revive growth in a sustainable manner."

Policy reforms are needed to correct "the bad growth mix of high fiscal deficit and low investment".

On October 31, government data showed fiscal deficit at Rs 3.36 lakh crore in the first six months of 2012-13 stood at 65.6 percent of the budget estimates. The government has also raised the fiscal deficit target for the current fiscal to 5.3 percent from the Budget estimates of 5.1 percent of the GDP.

The government's recent reforms include allowing FDI in multi-brand retail, aviation and broadcasting, hiking diesel price, capping the number of subsidised LPG cylinders, opening up pension sector to foreign investment and raising the FDI cap in insurance to 49 percent.

According to Morgan Stanley report, the revival of capex cycle will take place in two stages -- in the first stage, existing projects will move forward (brownfield investment). "New capex (Greenfield investment): We think revival in Greenfield investment will take much longer," it said.
"If the government is able to implement aggressive policy reforms in a way that begins to kick start large Greenfield projects, we could see GDP growth accelerating at a faster pace starting from FY'2014," the report added.

The report further added that "we are positive on the government’s effort to support investment trends, while less confident that the government will be able to achieve a meaningful reduction in fiscal deficit via expenditure control and/or cut rural wage growth in the year before the general elections."


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