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Brokerage firm Barclays Capital has lowered India’s growth forecast to 6 per cent for 2013-14 from the earlier projection of 6.2 per cent, citing “recent disappointments” in economic activity.
“We fine-tune FY 2013-14 GDP growth forecast to 6 per cent (from 6.2 per cent earlier) to reflect the recent disappointments in activity indicators,” Barclays Capital said in a research note today.
Downside risks to growth
The brokerage firm further cautioned that there is a possibility of further downside risks to growth, especially in the near term as RBI’s policy interest rate cut in recent months has not been translated into reduction in bank lending rates.
Moreover, the Government is likely to continue with its fiscal austerity moves.
The likelihood of continued fiscal austerity, along with weakness in typically resilient segments such as domestic services, suggests sluggish economic activity for a while, Barclays said.
“We would also not dismiss the possibility of further downside risks to growth, especially in the near term,” the report added.
Austerity measures
India’s Q3 FY’13 GDP grew 4.5 per cent year-on-year, fuelled largely from the Government’s austerity drive to control the fiscal deficit, Barclays said.
Spending curbs by the Government have generated further downside to the already weak growth momentum. Moreover, several other indicators (like industrial production, core industrial growth, PMI, vehicles sales, government spending) remained weak, even during the early months of 2013.
GDP growth
According to Barclays, GDP growth remained weak in Q4 of 2012-13 fiscal (January-March) at around 4.9 per cent, which points to FY 2012-13 real GDP growth of 5 per cent.
On policy rate cut, the report said that continued downside surprises in inflation prints (both WPI and CPI), weaker than expected recovery in growth, and spending curbs by the government have created room for deeper monetary easing.
“While our expectation of another 25 bps cut by the RBI on June 17 remains, we now expect a further 50 bps reduction in repo rate in H2 FY’13,” the report said.
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