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Standard Chartered cuts India's growth forecast to 5.4 per cent for FY13

Standard Chartered Bank has lowered India's growth forecast for this fiscal year to 5.4 per cent from 6.2 per cent projected earlier despite the recent reforms push.

BT Online Bureau | September 17, 2012 | Updated 14:58 IST

Standard Chartered Bank has lowered India's growth forecast for this financial year to 5.4 per cent from 6.2 per cent projected earlier despite the recent reforms push.

The first quarter of this financial year saw a GDP growth of 5.5 per cent which was marginally better than expected.

Earlier this month, Morgan Stanley had also lowered India's growth forecast to 5.1 per cent for 2012-13, from its earlier estimate of 5.8 per cent and HSBC has cut India's growth forecast for the financial year to 5.7 per cent from 6.2 per cent projected earlier.

"We revise our FY13 GDP growth forecast sharply lower to 5.4 per cent from 6.2 per cent despite the better-than-expected Q1 FY13 GDP print of 5.5 per cent y/y," Standard Chartered said in a research note.

However, going forward India is likely to register sub-5 per cent GDP growth in the forthcoming quarters for the rest of 2012-13.

According to the report, the series of recently announced government reforms will contain the fiscal deficit and increase foreign participation in selected sectors but "India's macro backdrop remains challenging".

"While these measures will have a positive medium-term impact and will change the perception of policy paralysis in India, they may not have an immediate effect on growth. It will be important to maintain the reform momentum in order to put growth back onto an upward trajectory," the report added.

In big ticket reform measures, the Cabinet Committee on Political Affairs on September 13 decided to hike diesel prices and put a cap on supply of subsidised LPG cylinders.

The following day, the Cabinet and Cabinet Committee on Economic Affairs (CCEA) cleared foreign direct investment (FDI) in multi-brand retailing and in Indian airlines as well as disinvestment in four PSUs.

The report said that the spate of reform measures are likely to change the perception of policy paralysis among investors and rating agencies, and could revive business sentiment and attract equity inflows in the near term.

"The reform process needs to continue, and there is no room for complacency. The government has provided a positive surprise to the market with the latest round of reforms, which change the perception of policy paralysis in India. It is now crucial to keep the reform momentum going so that growth can return to an upward path." it said.

According to the report, while industrial growth has stalled, the services-sector growth - which has significantly lost momentum - is likely to remain low for a while.

Moreover, the agriculture sector could also suffer from delayed monsoon rains this season.

With inputs from PTI

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