The Hindu Business Line : DSP Merrill raises GDP estimate

Mr Rajeev Varma, Second Vice-President Research, DSP Merrill Lynch, with Mr Andrew Holland, Chief Administrative Officer & Executive Vice-President-Research, at a press conference in Mumbai on Tuesday. — Shashi Ashiwal

Mumbai , Jan. 20

DSP Merrill Lynch Ltd has said that it has raised its GDP estimate for India to 8 per cent from 7.3 per cent for 2003-2004 and to 7.3 per cent for 2004-2005 from the earlier estimate of 6.3 per cent.

The financial services company's optimism stems from the fact that the services sector has reported a strong growth and the monsoon season was "exceptionally good".

DSP said that the second quarter of 2003-2004 showed a growth of 8.4 per cent, driven by a 9.6 per cent growth in services sector and a good monsoon. "We expect momentum in the services sector to be sustained and the positive effect of this year's monsoon on the industrial growth of fiscal 2004-2005.''

According to DSP Merrill Lynch, consumption is expected double to $500 billion by fiscal 2008 and the Government spending to sustain growth at over 10 per cent. Further macro-variables including low interest rates, manageable inflation and strong external position are also supportive of growth.

"Investment, which has been the missing link so far, is also in place,'' Mr Rajeev Varma, Second Vice-President, Research, DSP Merrill Lynch Ltd, said. Total investment spend is likely to rise by 60 per cent in three years to $208 billion by fiscal 2007. Capital formation in the economy is likely to rise from an estimated 21 per cent of GDP in fiscal 2004 to 24 per cent by fiscal 2007.

Infrastructure spend, the key driver of the investment cycle, is estimated to rise to $76 billion between 2004 and 2007.

According to DSP Merrill Lynch, a turnaround in investment in 2005 will be driven by (i) an upturn in the Capex cycle supported by rising domestic demand and capacity utilisation; (ii) a sharp rise in infrastructure spend mainly spurred by power sector reforms; (iii) and enhanced MNC outsourcing especially in the manufacturing sector.

The largest growth in infrastructure spend will be on roads. It is expected to increase by 150 per cent in the next three years.

DSP assumes inflation to be in the range of four to five per cent. Oil prices, the main component of inflation, is expected to significantly reduce till 2007 and hence bring down inflation.

MNC outsourcing, according to Mr Varma, could become significant in two to three years. India will become a sourcing base not only for the BPO or software industry but for the manufacturing sector as well. "There has been exponential growth in outsourcing in pharma, engineering and auto ancillaries,'' the report said.