This ad will auto close in 10 seconds

Nomura cuts India GDP growth forecast to 5.8% in FY'13

Last Updated: Tuesday, June 26, 2012 - 16:32

New Delhi: Noting that India's monetary and fiscal policies are at loggerheads, global financial services firm Nomura has lowered the country's growth forecast for this fiscal to 5.8 percent, from 6.7 percent earlier.

"Given weaker initial conditions and limited scope for a major stimulus, we revise down our GDP growth forecast to 5.8 percent for FY13 (year ending March 2013) from 6.7 percent," it said in a report.

Nomura has also cut its India GDP forecast for 2013-14 to 6.6 percent form the earlier 6.9 percent.

The government is aiming at GDP growth rate of about 7.6 percent this fiscal. India's economic growth rate slowed to 6.5 percent in 2011-12 from 8.4 percent in the previous two fiscals.

The global firm said India's monetary and fiscal policies are at "loggerheads" and in "deadlock".

It further said India government policies remain inflationary, reducing the scope for rate cuts, hurting growth and in turn exacerbating the fiscal deficit.

"In our view, the longer the economy stays in the current deadlock, the bigger the policy shock that will be required to get out," Nomura added.

On wholesale price based inflation, Nomura said that it has revised upward its average forecast to 7.6 percent for the current fiscal from earlier 7.1 percent due to higher food prices and rupee depreciation.

It has also revised upward its fiscal deficit forecast for India to 5.8 percent of GDP in the current fiscal from 5.2 percent. Government aims to bring down the fiscal deficit to 5.1 percent in 2012-13 from 5.76 percent in the previous fiscal.

Nomura's observations comes against the backdrop of global agency Moody's retained its stable rating outlook for India.

The government is targeting to end the fiscal with a 5.1 percent fiscal deficit, after overshooting the 4.6 percent target by a wide margin.

Nomura said longer the continuing delay over reforms will aggravate the situation and will only require even bigger measures to get the economy back on the higher growth trajectory.

"The longer the economy stays in the current deadlock, the bigger the policy shock that will be required to get out," Sonal Varma said.

However, on a positive note, she said the market still expects that the current gloomy news like GDP growth at a nine-year low, hammering of the rupee (it lost 7.4 percent since January 1 and 30 percent year-on-year) and warnings from rating agencies serve as a wake-up call and a new finance minister will usher reforms after the presidential election, she notes.


First Published: Tuesday, June 26, 2012 - 16:28
comments powered by Disqus