India's GDP could grow around 7.5 per cent in the next financial year, up from an estimated 7 per cent in 2011-12, said credit rating agency Fitch.
It has assessed that the country is reaching the bottom of the current economic cycle. Consumption demand appears to have stabilised as private consumption rebounded, rising 6.2 per cent year-on-year for the quarter ended December, compared to a 2.9 per cent increase in the preceding quarter ended September. Industrial production unexpectedly increased 6.8 per cent year-on-year in January compared with a 2.5 per cent year-on-year rise in December.
Manufacturing purchasing managers index remains elevated, reaching 56.6 in February, slightly below 57.5 in January.
The slowdown in economic activity is taming inflation. The headline wholesale price index rose 7 per cent year-on-year in February, compared to a 6.6 per cent rise in January.
“Barring any unforeseen shock to oil prices, it seems reasonable to believe that India is unlikely to face a sharp reacceleration in inflation this year,” Fitch said in its Global Economic Outlook.
Given the backdrop of a slowing economy and easing inflation, it should come as little surprise that the Reserve Bank of India has already begun to loosen monetary policy by cutting the Cash Reserve Ratio by 75 basis points in early March.
“The RBI should also be able to cut its key rate and bring it down by 100 bps over the course of FY2012-13,” the report said.